As a typical representative of capital-driven regional economic development, Hefei has been very popular in recent years and has even attracted the attention of the equity investment industry. It has the reputation of "China's most powerful venture capital institution" and "the city of venture capital".

The popularity of the Hefei model has become a phenomenal case. After seeing this, many cities want to learn and replicate it, and are competing to use state-owned capital to invest in emerging industries.The direction of their investment also seems to be following the trend., see Hefei andNIOIn the past few years, many cities have invested in new energy vehicle companies. However, after paying tens of billions of yuan in tuition fees, Hefei, you may not be able to learn.

In the era of digital economy, how cities can truly seize development opportunities is undoubtedly a test.

Replacing “attraction” with “investment”, Hefei model creates miracles

How fast is Hefei developing under the “venture capital model”?

From being ranked outside the top 40 in the city rankings in 2010, and being a once "controversial" second-tier city, to having a GDP of over one trillion in 2020, and becoming a new first-tier city,Hefei has maintained a compound annual growth rate of nearly 17.5% over the past 10 years.The number of high-tech enterprises increased by more than 800, and the growth of strategic emerging industries exceeded 18%. Behind this is the development of innovative industries driven by the government.

(Among the trillion-dollar cities in 2020, Hefei's 10-year growth rate is the most significant)

In 2008, under the impact of the financial crisis, BOE suffered a loss of more than 1 billion and faced tremendous financial pressure.

Hefei relied on its limited fiscal revenue and did not hesitate to suspend subway construction, providing a total of 17.5 billion yuan in aid.: The government invested 6 billion, strategic investors invested 3 billion, and there was 8.5 billion in loan support.

Today, BOE has a market value of 161.5 billion yuan, and has invested more than 100 billion yuan in Hefei. The floating profit of BOE shares held by the Hefei Municipal Government was over 10 billion yuan at its peak.

After BOE became famous, Hefei continued to focus on semiconductorsIn 2017, the Hefei government and GigaDevice invested 75% and 25% respectively to establish Hefei Changxin, specializing in the research and development and production of DRAM chips. In September 2019, Hefei Changxin announced the start of production of a DRAM chip independent manufacturing project with a total investment of 150 billion yuan, which will produce the first generation of 8Gb DDR4 memory based on the 10nm process technology in China.

(From 2006 to 2016, Hefei surpassed 8 provincial capitals and entered the top ten provincial capitals)

In 2019, NIO was having a hard time operating.The stock price fell to $1.2, which was a terrible drop. It was said that 18 cities were negotiating with the company but no one cooperated.

In April 2020, NIO, which was losing 11.3 billion yuan at the time, signed a final agreement with the Hefei Municipal Government and obtained a strategic investment of 7 billion yuan. NIO's headquarters was established in Hefei. Hefei did not make much money directly from NIO, but it produced a good scale effect.laterBYD, Volkswagen, all invested heavilyHefei's new energy industry layout has stepped up several levels, and a "new energy vehicle capital" has suddenly emerged, which is really a big win.

At this point, a new path for cities to attract investment through "investment banking" is about to emerge, which is the Hefei model. Simply put, the government sets up industrial investment funds, replaces "attracting" with "investment", and uses direct equity investment to attract star companies and projects to settle down, which ultimately drives industrial upgrading and promotes substantial economic growth.

The solid GDP growth rate has attracted leaders from all over the country to visit Hefei for inspection and study.

A media outlet mentioned a statistic: "On average,There are 50 delegations visiting Hefei every month, including many from first-tier cities. The Hefei model of equity investment driving industrial upgrading is also flourishing in various places.More and more cities are dispatching investment promotion personnel to look for projects across the country in an attempt to replicate the miracle of the Hefei model.

A large number of investors invested in new energy vehicles, but the result was nothing but a mess

The great cooperation between Hefei and NIO has made new energy vehicle projects a favorite of state-owned assets across the country.

Because only this kind of fixed asset investment with the right direction and large scale can allow enterprises to buy land, factories and equipment locally, which can immediately boost GDP, and can also drive the development of enterprises in the industrial chain and form industrial clusters. In addition, with the rise of new car-making forces, everyone is scrambling for new energy vehicle projects.Everyone wants to be the second Hefei.

However, is the Hefei model so easy to learn?Many cities have fallen into the "trap" of new energy vehicles.

HiPhiIt is the first new energy vehicle company to encounter major difficulties at the beginning of this year, which puts Qingdao, which has a marriage with it, in an awkward position. Looking back at the honeymoon period a few years ago, it took only a few months for both parties to complete the contract from the first contact in 2021. Similarly, in the Daily Youxian project in which Qingdao state-owned assets participated, it took only 150 days from negotiation to signing.This speed was initially seen as something to show off, but later became almost a negative mark. Qingdao State-owned Assets' claimed 2 billion investment was lost in this project.

The background of the implementation of the HiPhi project is Qingdao's desire to expand the new energy vehicle industry. At present, the automobile industry has become one of Qingdao's pillar industries. In order not to lag behind in the field of new energy, Qingdao has issued statements many times in recent years, expressing its intention to promote the development of this industry. The arrival of HiPhi also once satisfied this wish. However, the current situation of the suspension of the HiPhi project has made the Qingdao government's investment of tens of billions of yuan likely to fall through.

Nanjing, the capital of Jiangsu Province, issued a document in January 2019 to build itself into a landmark for the new energy vehicle industry. The document is ambitious, proposing that by 2020, Nanjing's new energy vehicle production should rank among the top five cities in China, and by 2025, it should rank among the top three in China, and that it should have two vehicle companies with "world brand effects".

To achieve the goal,Nanjing has established a leading group for the construction of a new energy vehicle industry landmark, with the mayor as the group leader; set up a special fund of no less than 5 billion yuan; and provided risk compensation, credit support, and financial subsidies.In fact, Nanjing started to take action two years ago. It introduced two new car-making forces, one is Byton and the other is Bojun.

At that time, Byton once cooperated with Weilai,Xiaopeng, WM Motor are collectively known as the "Four Little Dragons" of new car-making forces, and are expected to become the first new car-making force to achieve further development of the company through IPO financing.

Byton's Nanjing factory is the ceiling among all the new car-making forces: the factory covers an area of ​​1,200 acres, with a total investment of more than 11 billion yuan. It is designed and built according to the standards of Industry 4.0. The stamping and welding workshops will be highly automated and equipped with about 400 robots. However, by mid-2020, Byton collapsed and was named by CCTV for "burning 8.4 billion yuan but failing to produce mass-produced cars."

Perhaps as a final rescue, in September 2020, the Nanjing Municipal Government jointly established a company with relevant parties. It is said that the Nanjing Municipal Government invested 150 million US dollars in this regard, and the purpose of this company is to raise more funds for the mass production of Byton's first model.However, the rescue plan did not work, and Byton's mass-produced car never appeared.

At the end of 2016, Bojun Automobile settled in Pukou Economic Development Zone with a total investment of 10 billion yuan, more than 50 kilometers away from Longtan Industrial New City where Byton is located. To show its sincerity, Bojun’s second largest shareholder is Nanjing Shipu New Energy Automobile Industry Investment Fund, which is backed by Pukou District Economic Development Company and Shenzhen Qianhai Zhongke Investment, and the subscribed capital was nearly 40 million yuan. The Nanjing Municipal Government expects that the project will have a total profit of 4.2 billion yuan and tax revenue of 3.7 billion yuan per year.

Similar to Byton's car manufacturing schedule, Bojun hopes to achieve mass production by the end of 2019 and start mass delivery in 2020. But it turns out that this is a complete empty promise. In the first half of 2019, rumors about Bojun Automobile's wage arrears spread like wildfire, and this new car-making force, which has experienced 6 rounds of financing, gradually fell into trouble. Not only did the mass-produced car fail to be launched, but the Pukou District People's Court of Nanjing ruled to accept the bankruptcy liquidation of Bojun Automobile, and the project completely failed.

WM Motor, whose founder Shen Hui fled, cheated Shanghai out of more than 5 billion yuan and left Mianyang with a bunch of worthless shares; Guangzhou invested 12 billion yuan in Baoneng Automobile, which was the largest single investment in new energy vehicles by local state-owned assets, but Baoneng collapsed; Weifang and Shandong state-owned assets invested 2 billion yuan in Reading Automobile, but the company was gone. The worst was Weifang state-owned assets, which went bankrupt six months after the investment; Tongling and Anhui state-owned assets invested more than 3 billion yuan in Singularity Automobile, but it failed to achieve mass production...

Data shows that in 2020 alone, the domestic new energy vehicle industry raised a total of 89 financings.Disclosed funds amounted to 129.2 billion yuan, and most of the financing cases involved funds with local government backgrounds. However, judging from the results, by 2023, more than 40 new forces have gone bankrupt, leaving a mess on the ground.Moreover, this bankruptcy trend is accelerating due to overcapacity and price wars.

If you only envy the meat Hefei eats, don't forget the beatings Hefei suffered.

Let us turn our attention back to Hefei.

In the discussions about Hefei's counterattack in the past two years, the complex path of urban industrial upgrading has been simplified into a few victorious gambles by venture capital.

HoweverThe landing of any leading enterprise or star project is the result of comprehensive consideration.Behind the successful investment and introduction of enterprises such as BOE, Changxin Storage, and NIO, Hefei's industrial upgrading has actually been solidly paved.

Take BOE as an example. After encountering a crisis of continuous losses, BOE sought cooperation with Shanghai and Shenzhen, but the negotiations broke down. There are two major prerequisites for BOE to successfully land in Hefei:

First,Hefei had just proposed to build a city based on industry, and the proportion of industrial investment has continued to increase. It has accumulated certain industrialization experience, especially the extremely developed home appliance industry.

second,As the "home appliance capital", Hefei's production of the "four major appliances" (air conditioners, color TVs, washing machines and refrigerators) has ranked first in the country for many years, and it has a huge demand for LCD screens. Hefei's introduction of BOE can at least solve the supporting needs of the home appliance industry.

The investment in chips and integrated circuits is not because these industries are too hot, but because Hefei's demand for chips is increasing during the rapid development of home appliances, computers, and display industries.Local governments guide industrial agglomeration through equity investmentThe introduction of NIO is also based on the existing automobile industry foundation in Hefei.JAC Motors, we have been cooperating in OEM for three years.

It is not difficult to see that these classic cases of attracting investment in Hefei are not a gamble like randomly rolling the dice, nor are they a way of winning everything by taking a bold gamble.Moreover, everyone only sees how Hefei makes money, but ignores the beatings Hefei has suffered. In fact, the "City of Venture Capital" also has many failed projects.

For example, during the years when BOE was introduced, Hefei, which is not along the Yangtze River (the Yangtze River and its first-level tributaries) or near the sea, boldly introduced China's largest private shipbuilding company, Rongsheng Heavy Industries Group. Rongsheng Heavy Industries Group has established two branches in Hefei with a total investment of 5 billion yuan, preparing to build the country's largest low-speed ship diesel engine production base in Hefei. In order to transport diesel engines weighing thousands of tons to seagoing ships, Anhui Province and Hefei City jointly took the lead in investing 1.2 billion yuan to establish a waterway management company, which transformed the 132-kilometer waterway from Paihe to the Yangtze River, and added two ship locks at Chaohu Lake and Yuxikou, so that low-speed ship diesel engines can be transported directly from Hefei to the Yangtze River and then go out to sea through the Yangtze River.

Around 2010, Rongan Power and Rongsheng Machinery reached their peak. However, in 2013, the shipbuilding industry suddenly encountered a cold snap, the shipping market took a sharp turn for the worse, and Rongsheng Group companies were deeply mired in a series of debt crises.The two companies owed a total of more than 500 million yuan in bank loans, overdue interest, and rent.The star enterprise owed the state more than 20 million yuan in taxes and became a "deadbeat" and finally had to rely on auctioning land to recover the debt.

In August 2010, the groundbreaking ceremony for the 1,600 MW solar cell project of LDK Solar (Hefei) Co., Ltd. was held in Hefei High-tech Zone. The first phase of the project plans to build 1,000 MW of solar crystalline silicon cells. It is the first large-scale solar cell project in Anhui Province and the largest photovoltaic project started in one go in the world. Moreover, the founding capital of LDK Solar (Hefei) Co., Ltd. of 2.5 billion yuan all came from Hefei City.

However, Savi's development from peak to decline was extremely rapid.Since 2011, the global photovoltaic market has experienced overcapacity and reduced demand, and LDK has gradually fallen into a predicament of broken capital chain and worsening debt. In the fall of 2013, after 218 rounds of bidding, the Hefei LDK photovoltaic industrial base was acquired by Tongwei Group for 870 million yuan, avoiding bankruptcy.

After changing hands twice within half a year, this solar cell project, which is known as the world's largest single investment, was able to come back to life. However, the huge economic losses caused by the Hefei Municipal Government's advance payment and construction are difficult to recover.

In 2013, Hefei announced a partnership with Peking University’s Weiming Group to invest 20 billion yuan to build a pharmaceutical industrial park in Hefei. However, the cooperation between the two parties also fell apart with the bankruptcy and reorganization of Weiming Group.

Only with the early industrial foundation can there be the later industrial leap; there is the success of accumulation and the bitterness of investment failure. This is the complete narrative of the Hefei model.

The traditional model of attracting investment is nothing more than giving money, land, subsidies, and various tax incentives to attract enterprises.The Fei model has been more deeply involved, with equity investment made through state-owned capital platforms and capital used to attract investment, thus forming a deeper bond with enterprises.If we reflect on the Hefei model,Will the government’s credit endorsement provide these introduced enterprises with various conveniences of “extraordinary treatment” for their development?

As local governments step in and deeply intervene in business operations, will this breed local protectionism and affect fair market competition?When selecting high-quality enterprises, do they have the supporting environment needed for enterprise development? Furthermore, even if key enterprises are attracted, will these cities, like Hefei, withdraw their equity in a timely manner and hand them over to market-oriented platforms for operation?

There is probably only one "venture capital city". If other cities rush to copy some of Hefei's models because they are successful, then they are oversimplifying industrial development and venture capital.There is no shortcut to a city’s industrial leap forward. It is necessary to start from its own reality, adapt to local conditions, play to its strengths, avoid its weaknesses, and give full play to its comparative advantages in order to achieve long-term stability.

——The  End——

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