China Announces State Fund to Boost Tech Innovation
Beijing, China – In a move signaling its determination to become a leader in cutting-edge technology, China is establishing a state-backed fund aimed at accelerating innovation in key sectors such as artificial intelligence, quantum technology, and hydrogen energy storage. Zheng Shanjie, head of China’s National Development and Reform Commission (NDRC), made the announcement during a press conference held alongside the annual sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference, often referred to as the “two sessions.”
This new “state venture capital guidance fund,” is expected to attract nearly 1 trillion yuan (approximately $138 billion) in capital over the next two decades. The funds will be sourced from local governments and the private sector, reflecting Beijing’s commitment to fostering technological self-reliance, particularly in the face of growing pressure from U.S. tech restrictions.
Zheng highlighted the rapid progress China has made in areas like microchips, AI large language models, and robotics. He stated that China’s technological advancements are a direct response to external pressures. “Scenes once only seen in science fiction are now becoming reality. We are steadily moving toward the global frontiers of technology and innovation,” Zheng said.
The focus on technological advancement comes as Chinese leaders view high-end chips, quantum computing, robotics, and AI as vital for powering economic growth and upgrading the nation’s manufacturing capabilities. Recent advancements in AI development, such as the DeepSeek R1 large language model, which nearly matches the capabilities of leading models like OpenAI’s GPT-4, Meta’s Llama, and Google’s Gemini, but at a much lower cost, demonstrate China’s growing capacity for innovation.
Consumption and Economic Strategy
While emphasizing technological innovation, Chinese leaders are also prioritizing domestic consumption. Zheng announced that the government will soon unveil a “special action plan to boost consumption.” This strategic shift underscores Beijing’s efforts to strengthen the domestic market and reduce its reliance on exports.
China’s household consumption as a share of the country’s gross domestic product (GDP) stood at just 39% in 2023, as reported by Macquarie Group, an investment bank. This is significantly lower than other major economies like South Korea (49%), Japan (55%), and the United States (68%). The Chinese government is determined to increase domestic consumption to achieve more balanced economic growth.
Premier Li Qiang, in his annual work report, pledged to “foster emerging industries and industries of the future.” He also promised to establish a mechanism to increase funding for strategic sectors. To further stimulate the economy, China plans to increase its budget deficit to around 4% of GDP, the highest level in decades, and raise the quota for government bond issuance to 6.2 trillion yuan ($855 billion).
Special bonds issued by local governments will be used to boost infrastructure investment and to stabilize the housing market, and the central authorities will allocate roughly 300 billion yuan ($41 billion) to consumer subsidies through a “cash-for-clunkers” program. Key to the government’s success will be whether it is able revive the “animal spirits” of China’s private entrepreneurs, who will need to advance technological innovation as Beijing gears up for more restrictions from the US.
To improve the business environment, Chinese leader Xi Jinping met with the country’s top tech executives, proclaiming it was “prime time” for private enterprises to thrive. A new Private Economy Promotion Law is also being considered, aimed at ensuring legal support and protection for private companies. The law will address concerns like property rights protection and fair competition, boosting the confidence of private enterprises and their positive expectations for the market. Private businesses contribute more than 60% to China’s GDP and over 80% of employment, despite being dwarfed by the state sector in size.
