A closer look at the 'Hefei model' through CXMT's breakthrough: A pursuit of patient capital & cutting-edge tech

Editor's note: This article is translated from Chinese, reflecting the author's opinions and not necessarily the views of CGTN.

In the wide landscape of industrial investment by China's local governments, Hefei City is undoubtedly among the most talked-about cities. From betting on BOE Technology in 2008, to providing "timely support" to NIO in 2020, then to CXMT's listing on the STAR Market in 2026 — where it achieved a market capitalization of one trillion yuan — Hefei has earned the label of "the most impressive venture capital city" through a series of "legendary" moves.

However, Hefei officials have repeatedly emphasized: "We are not venture capitalists; we are industrial investors. This is not gambling; it is hard work." This seemingly contradictory statement precisely reveals the core of the "Hefei Model"—it is not a capital game pursuing short-term financial returns, but rather a systematic industrial investment methodology centered on "attracting capital through investment," underpinned by patient capital, and supported by full-life-cycle services.

Investment logic: Not "venture capital " but "industrial investment"

Outsiders often simplistically dismiss Hefei's investment activities as "gambling," but a deeper analysis reveals that every move Hefei makes follows a rigorous industrial logic.

First is the industrial chain mindset of "filling chain gaps where they need." Hefei's investments do not blindly chase trends but instead focus on "filling gaps, extending, and strengthening the chain" for the local industrial base. The investment in BOE in 2008 was driven by urgent needs of Hefei—as the "capital of home appliances"—to address its reliance on imported display screens; the investment in CXMT in 2016 aimed to meet the pressing demand for memory chips in industries such as home appliances and automobiles; and the investment in NIO in 2020 was a natural extension of Hefei's traditional automotive industry's transition to new energy. This "chain-based" approach aims to cultivate an entire "industrial forest," rather than just a single "towering tree."

Second is the strategic resolve demonstrated by "counter-cyclical investment." Unlike traditional venture capital, which pursues short-term quick wins, Hefei has shown patience that transcends short-term political achievements. Take CXMT as an example: from the project's launch in 2016 to its IPO in 2026, Hefei's state-owned capital stood by the company through nearly a decade of running under deficit. During the industry's downturn from 2022 to 2024, when market capital was fleeing, Hefei's state-owned capital not only refrained from divesting but actually increased its investment. This "cross-term" patient capital stands in stark contrast to the short-sightedness of most local governments, which demand visible returns within a single term.

Finally, there is a professional team that understands the industry and knows how to invest. Hefei has cultivated a professional team that is well-versed in both industry and finance, and whose decision-making logic is entirely market-driven. When investing in NIO, the decision-making team not only conducted an in-depth analysis of national automotive industry policies but also rigorously evaluated NIO's technological advancements and commissioned professional institutions to carry out comprehensive due diligence. This principle of "prioritizing expertise and not investing without understanding" ensures that every investment is grounded in clear industry logic.

Institutional safeguards: Error-tolerance mechanisms and a closed-loop exit process

The Hefei Model's sustained operation is inseparable from its unique institutional safeguards.

On one hand, Hefei has established an institutionalized error-tolerance mechanism. As early as 2014, Hefei was among the first in the country to propose the concept of "exemption from liability for due diligence and tolerance for failure," with the error tolerance rate for angel investment funds reaching up to 50%. No local entity or individual has ever been disciplined for investment failures. This market-oriented logic — that "investment losses are normal for businesses" — has broken the "term-of-office mentality" among local officials, who previously sought only to prefer a safe path over bold innovation, thereby providing the necessary room for trial and error in industrial investment.

On the other hand, Hefei has built a closed-loop capital cycle of "investment–exit–reinvestment." Nearly all investments in major projects in Hefei are market-based equity investments rather than grants. Once the portfolio companies mature, state-owned assets in Hefei will exit in an orderly manner through means such as IPOs, equity transfers, or buybacks by the companies themselves, channeling the returned capital into the next round of project investments. For example, in the BOE project, state-owned assets obtained substantial cash returns after reducing its stake in batches; in the NIO project, partial divestment immediately generated cash flow and yielded a net profit. This mechanism of "using success to offset failure" ensures the rolling appreciation of state-owned capital and the continuous upgrading of industries.

Model evolution: From "transplanting big trees" to "cultivating a forest"

As the industrial landscape evolves, Hefei's investment model continues to iterate and upgrade.

In phase 1.0, Hefei's core strategy was "transplanting big trees" — that is, using state-owned capital to lead investments and attract leading enterprises such as BOE and NIO, thereby rapidly laying the foundation for the industry. Entering Phase 2.0, Hefei began "nurturing seedlings and planting forests," extending its investment reach to earlier-stage tech startups — such as Circuit Fabology Microelectronics Equipment and SeeYA Technology—to secure control over the source of technology.

Today, Hefei has entered Phase 3.0, which centers on building a "tropical rainforest"-style innovation ecosystem. Through the "Venture Capital City Initiative," Hefei has widely attracted private institutions to become city-level industrial partners, shifting from the traditional "fundraising, investment, management, and exit" model to supporting enterprise growth throughout their entire lifecycle. The three major state-owned platforms — Hefei Construction Investment, Hefei Industrial Investment, and Xingtai — have formed a closely coordinated "iron triangle": Construction Investment leads investments in leading enterprises, Industrial Investment refines industrial chains, and Xingtai provides comprehensive financial services. This combined approach of "state-owned capital leadership plus market-driven operations" is unleashing a steady stream of innovative vitality.

A sober assessment: Not a myth, but a methodology

Although the "Hefei Model" has achieved tremendous success, it is by no means a myth where "every investment hits the mark."

In fact, Hefei has also experienced hits and misses. Early investments such as the Xinhao Plasma project were ultimately divested due to betting on the wrong technological path, and the Peking University Weiming Biotechnology project also ended in failure. These failures remind us that government industrial investments are equally subject to market risks, technological route risks, and corporate governance risks.

Hefei's success lies in the fact that it did not let setbacks derail its efforts; instead, by establishing scientific decision-making mechanisms and error-tolerance mechanisms, it kept the costs of failure within manageable limits and offset the losses from early-stage exploration with the massive successes of projects like CXMT and BOE.

The IPO of CXMT serves as the most compelling testament to the "Hefei Model". However, this is not the end but a new beginning. In the race for technological innovation and industrial upgrading, there are no permanent winners. For Hefei, the key to advancing from a "venture capital city" to an "industrial highland" will lie in how it transforms paper gains into sustained industrial competitiveness, maintains composure amid industrial cycle fluctuations, and optimizes its investment structure within fiscal constraints.

Hefei's story demonstrates that government industrial investment does not compete with the private sector for profits, but rather represents an innovative investment promotion model that uses capital as a link and industry as its goal. When capital is patient, industries are firmly rooted, and governance is professional, a city can secure a sustainable and proactive future amid global industrial transformation and regional competition.