State-led Financialization in China: The Case of the Government-guided Investment Fund

The government-guided investment fund (zhengfu yindao jijin 政府引导基金, GGIF hereafter) has grown in popularity among China's governments at various levels as a policy tool for promoting development. As stated in one recently published document, “According to the needs of development, various funds … should be set up according to law to give full play to the guiding role and magnifying effect of government capital.”¹ All the funds mentioned in this document can be classed as GGIFs – a category which covers government-guided private equity funds and venture capital funds – which provide equity investment to support entrepreneurial activities, strategic industries and infrastructure. Central and local governments consider GGIFs to be an effective financial tool for promoting development, which has led to their rapid uptake throughout the country in a relatively short space of time.

This trend echoes the increasing financialization of the state globally, with both central government and local governments using financial tools to achieve policy goals.² Although the concept of “financialization” is controversial and has its limits,³ state-led financialization in this study refers to the state's growing use of financialized policies. This broad definition of financialization is different from that used in many existing studies based on Western economies, as those studies largely consider financialization to be the result of neoliberalism and the diminishing role of the state.⁴ However, this is not the case in countries like China.⁵ While we agree that the forms and consequences of the financialization of the state are variegated, largely owing to different social and institutional settings,⁶ this study aims to investigate how state-led financialization has occurred in China's institutional contexts.

We argue that two key institutional factors are crucial for understanding the financialization of the state in China. The state plays an important role in economic development and China has significantly reformed its economic and financial systems and adopted various “market tools”⁷ or “capitalist tools”⁸ in policy practices to encourage growth and development. This change in governance has led to fierce inter-regional competition among local governments to apply financialized policies. At the same time, the financial system in China is largely controlled by the state, as most key financial firms including banks, securities firms and insurance companies...