The blockbuster debut of Chinese memory chipmaker CXMT in late July — shares surging nearly fivefold on opening day and pushing the company's market capitalization past 3 trillion yuan to overtake Industrial and Commercial Bank of China (ICBC) as China's most valuable listed company — has reignited a national debate about whether government equity stakes can fill the yawning hole left by the country's collapsed land finance model.
The debate centers on Hefei, capital of Anhui province. The city's municipal government backed CXMT a decade ago alongside China's national semiconductor investment fund, and Hefei's state-owned asset entities still hold more than a third of the chipmaker's shares. With CXMT now profitable and its stock price soaring, the city is sitting on substantial capital gains and a growing stream of dividend income. Observers have rushed to ask: if Hefei can do it, why can't everyone?
From Land Sales to Equity Portfolios
To understand the appeal of the question, one must first understand how comprehensively the old model has failed. For the better part of four decades since China's economic opening, local governments funded themselves through a well-worn cycle: acquire farmland from rural residents, rezone it, then sell parcels to property developers at a premium. Infrastructure followed — roads, schools, parks — which lifted surrounding land values and enabled the next round of sales. Analysts called it "land finance," and for a generation it functioned like a perpetual-motion machine.
That machine has seized up. China's property sector has been mired in a prolonged slump, local government debt has ballooned to the point where Beijing has stepped in to absorb portions of it, and economic growth has decelerated. Land finance can no longer anchor local fiscal planning.
CXMT's debut, coming on top of Hefei's earlier successes backing display-panel giant BOE and electric-vehicle maker NIO, has led many commentators to present equity finance as the natural successor — a model in which local governments act as patient venture investors, nurture strategic industries, collect dividends, and cycle capital gains into the next generation of bets.
Why Hefei's Track Record Cannot Be Replicated
The logic is seductive. The evidence against it is overwhelming. Among nearly 300 prefecture-level administrations across China — jurisdictions comparable in status to Hefei — only Hefei has made equity finance work at any meaningful scale. Even Shenzhen, China's most technologically sophisticated city, has reportedly channeled close to 200 billion yuan into more than 1,700 projects and helped hundreds of companies list on public markets. Shenzhen's government still cannot sustain itself on equity returns.
Several structural realities explain this gap. Effective venture investing demands rigorous deal selection and active portfolio management — capabilities that most government bureaucracies are structurally unequipped to develop. The downside risk is severe: Wuhan's municipal government lost hundreds of billions of yuan after falling victim to the Hongxin Semiconductor Manufacturing (HSMC) fraud in 2021, now regarded as one of the costliest scams in China's semiconductor history. A single bad bet of that magnitude can erase years of dividend income.
Even successful bets take far longer to mature than a local government's annual budget cycle can accommodate. The average successful equity investment — from capital deployment to IPO exit — spans seven to ten years. Hefei's own stake in CXMT ripened over exactly that timeline. Annual expenditure obligations, by contrast, cannot be deferred.
Equity markets also introduce their own volatility. Land finance suffered when property prices turned. Equity finance would be subject to the same boom-and-bust dynamics, amplified by the inherent swings of public markets.
TSMC Demonstrates the Limits of the Model
Taiwan's experience with its own flagship government-backed chipmaker provides perhaps the clearest evidence that equity finance cannot substitute for a full-scale fiscal foundation. TSMC, founded nearly 40 years ago with backing from Taiwan's National Development Fund (國發基金), is by any measure one of the most successful technology investments any government has ever made.
Yet even TSMC barely registers at the level of national accounts. The Taiwanese government has sold down its stake repeatedly over the decades, collecting roughly 100 billion New Taiwan dollars in total proceeds. Its current holding stands at 6.38%. Last year TSMC posted profits exceeding 1.7 trillion New Taiwan dollars, and the government's annual dividend from that stake amounted to just over 100 billion New Taiwan dollars.
Against Taiwan's annual budget of approximately 3 trillion New Taiwan dollars, TSMC's contribution covers only a fraction of state expenditure — a meaningful supplement, but far from a fiscal anchor. And TSMC, as even its most ardent supporters concede, is an extreme outlier. Taiwan has operated its development fund for more than half a century and produced exactly one TSMC. The broader portfolio tells a mixed story of successes and failures.
A Supplement, Not a Solution
None of this is an argument against government equity investment as a policy tool. When it works, state-backed industrial strategy can catalyze industry formation, create employment, and broaden the tax base over time. Hefei's track record is real, and its accomplishments in semiconductors and electric vehicles deserve recognition.
But equity finance, even at its best, is a complement to conventional fiscal policy — not a replacement. It cannot generate the stable, year-round revenue that government operations require. It cannot be replicated across most administrations. And it carries risks that are, in important respects, harder to manage than those inherent in land sales. The hype surrounding CXMT's listing is a lesson in how powerfully a single spectacular success can distort expectations across an entire system. China's local governments need a fiscal model that scales across hundreds of jurisdictions. Equity finance, for all its allure, does not qualify. （Related： Beijing Watch | Zhu Rongji, China's Reform-Era Premier, Dies at 98 ｜ Latest ）
