On July 27, 2026, Changxin Technology landed on the Science and Technology Innovation Board (STAR Market), with its opening price surging over 450% and its total market capitalization once breaking through 3 trillion yuan during the session.
Calculated based on the closing market cap that day, the approximately 33% stake held by the Hefei state-owned capital system had a book value exceeding one trillion yuan.
What does one trillion yuan signify? Hefei's total general public budget revenue for 2025 was less than one hundred billion yuan.
A single investment, over ten years, yielded a paper return equivalent to the city's ten years of fiscal revenue.
The public opinion sphere quickly erupted, with labels such as "China's most impressive venture capital" and "the city that dares to gamble the most" spreading everywhere.
Amidst this noisy narrative, there's a term people love to use: high-stakes gambling.
In fact, this term is quite suggestive, implying that Hefei's move was a risky bet, a fluke victory. But I think such comments are too "sour." You need to understand: Why did Hefei dare to invest 13.5 billion yuan in 2016, betting on a field that was virtually non-existent in China at the time? Why did Hefei not withdraw during the eight long years when Changxin Storage accumulated losses exceeding 36 billion yuan? Why was it precisely Hefei, not other cities with stronger financial resources, that made this happen?
In my view, the real value of the Changxin case is not in proving that "local governments can make huge profits through investment," but in demonstrating how a complete set of institutional arrangements can transform "long-termism" from a slogan into an executable operating system.
This system consists of at least three core components: a risk mitigation mechanism, industrial chain integration capability, and counter-cyclical decision-making authorization. Beyond these three components, there remains an unresolved exit challenge, which even relates to whether this trillion-yuan paper profit can truly be realized.
Can a Fault-Tolerant Mechanism Change Decision-Maker Behavior?
Why did Hefei "dare" to invest? In most local governments, state-owned capital investment decision-makers face "asymmetric risks." For instance, if the investment succeeds, the profits go to the public entity, with no direct personal return; if it fails, losses trigger audits, inspections, and accountability, potentially ending careers.
Within this structure, any rational official would tend not to invest or only invest in projects that "cannot go wrong." And "cannot go wrong" projects often mean mature technology pathways, proven business models, and closed risk windows—essentially, fields where others have already explored and paid tuition.
This "chase the rally, cut the losses" investment logic runs counter to the "betting amidst uncertainty" needed to cultivate emerging industries.
Hefei, however, broke this incentive structure. According to public information, Hefei City set an overall risk tolerance of up to 40% for its angel investment funds, allowing up to 100% loss for individual projects. More crucially, it introduced an operable "diligence-based exemption" list. As long as the investment decision followed prescribed due diligence, information disclosure, and collective decision-making processes, even if the project ultimately failed, relevant personnel would not face excessive accountability.
This system institutionally severed the objective fact that "a project might fail" from the organizational reaction that "someone must be held responsible." Its significance lies in giving the state-owned capital investment team reassurance. Their task became doing their homework thoroughly, not guaranteeing every project's success—the latter being inherently impossible.
Hence, this also explains why Hefei not only refrained from exiting but continued to inject additional funds during Changxin Storage's eight consecutive years of losses totaling over 36 billion yuan. The answer is not "courage"; it's the system.
Only when personal career risks are institutionally backstopped can decision-makers shift their focus from "what will happen to me if it loses" to "whether this project objectively still has a chance."
This point has direct reference value for the current nationwide push for "patient capital."
Many localities have issued government investment fund management measures mentioning "fault tolerance," but most remain at the level of principled statements, such as "fully disclosing risks" and "following due procedures." These lack quantitative standards and clear delineation of responsibility.
In practice, audit departments still tend to evaluate based on the profit or loss of individual projects.
The result is that while documents mention fault tolerance, accountability still prevails in practice.
Hefei's experience shows that for a fault-tolerant mechanism to truly work, it requires at least three elements: a quantitative allowable loss rate range, a positive exemption list, and a reversed burden of proof—where the supervisory body must prove wrongdoing by the investment team, not the team proving its own innocence.
Shanghai's "16 Articles" for state-owned capital, issued in April 2026, already clarified the direction of "combining annual and long-cycle assessments" and "not simply using the profit or loss of a single project or a single year as the assessment basis."
The direction is right.
But Hefei's practice shows that between "the right direction" and "feasible implementation," there lies a whole set of detailed implementation rules.
This is also where Shanghai's next steps could focus.
Investment Should Target Missing Links in the Industrial Chain
The fault-tolerant mechanism addresses the issue of "daring to invest," but it doesn't answer where to invest.
Hefei doesn't invest in "good projects"; it invests in "missing projects." A one-word difference implies a completely different logic.
"Good projects" represent a financial investment perspective: a good sector, strong team, rapid growth, reasonable valuation. Yet this fails to answer the core question for local government industrial investment: What does this project mean for the local industrial ecosystem after it lands? Which upstream and downstream sectors can it drive? Which shortcoming in the industrial chain can it address?
If it's merely investing in a financially attractive project with no connection to local industry, it is essentially just a financial investment, unrelated to the long-term building of urban competitiveness.
Hefei's practice is to first clarify which industries the city wants to develop, then identify the most lacking, difficult, and critical links within that industry's chain, and use state-owned capital to fill that "market failure" gap.
Take integrated circuits as an example. Around 2013, Hefei explicitly proposed building an "IC Capital." This strategic decision was made against the backdrop of home appliances, flat-panel displays, and automobiles being Hefei's three pillar industries. During the transformation and upgrading of these three industries, they all encountered the same bottleneck: a lack of chips.
If the chip segment couldn't achieve localized supporting capacity, the competitiveness of the entire manufacturing cluster would be constrained by others.
After clarifying "what is needed," the next step was identifying "what is missing."
In the memory chip field, China's domestic production capacity was almost zero, with 96% of the global market monopolized by Samsung, SK Hynix, and Micron.
The DRAM segment was the largest, most critical shortcoming in Hefei's industrial chain.
Changxin Storage was precisely aimed at filling this gap.
Its value, first and foremost, was not about how much money it could make in the future, but whether its existence could drive the agglomeration of the entire industrial chain in Hefei.
Facts proved this logic valid. Centered around Changxin as the "chain leader," companies like Cambricon, Tongfu Microelectronics, and Patton Technology successively settled in Hefei. Currently, Hefei has gathered over 450 upstream and downstream integrated circuit enterprises covering the entire chain from design, manufacturing, and packaging/testing to materials and equipment.
In 2025, the output value of Hefei's integrated circuit industry exceeded 151.4 billion yuan, an increase of approximately 7.4 times compared to about 18 billion yuan in 2016.
Within this logic, the role of state-owned capital underwent a qualitative change.
It wasn't "selecting projects"; it was "assembling a chain." Investing in one Changxin drove the agglomeration of hundreds of enterprises; the agglomeration of hundreds of enterprises, in turn, provided Changxin with lower-cost, higher-efficiency supply chain support.
This is a virtuous cycle.
The initial state-owned capital investment leveraged a multiplier effect for the entire industrial cluster.
Another key aspect of this strategy is Hefei's consistent positioning as an "industrial organizer" rather than a "passive financier" in its investments. From jointly helping Changxin purchase Wi-LAN's patent portfolio from Canada to circumvent technical barriers, to establishing city and provincial-level special task forces providing full-process services for project construction and financing, Hefei's state-owned capital remained deeply embedded in every critical link of industrial organization.
This is more complex than simply writing a check, but it is precisely this deep embedding that made "accurate investment" possible.
Counter-Cyclical Investment: Where Does Institutional Authorization Come From?
However, there's a third question: when to invest?
Changxin is an example. Hefei invested in it when the industry was at its worst.
2023 was a deep winter for the global memory industry. Giants like Samsung, SK Hynix, and Micron significantly reduced capacity utilization and slashed capital expenditures to "cut losses and survive."
At that time, Changxin Storage was not yet profitable, reporting a net loss attributable to shareholders of 16.34 billion yuan in 2023.
Common sense would dictate that the most rational choice then was to retrench, observe, and wait for spring.
Hefei chose to double down against the trend, supporting Changxin to continue increasing R&D investment and ramping up production capacity.
Production line utilization rose from 85.45% to 94.63%. This decision later proved to be a key winning move. When AI computing demand ignited the memory chip market in 2025, Changxin was the company with ready capacity.
But at that moment in 2023, what gave the person making that decision the courage?
This relates to institutional authorization for counter-cyclical investment. In fully market-oriented investment institutions, counter-cyclical investment requires the investment committee's trust in the fund manager. But within the state-owned capital system, counter-cyclical investment faces a dual difficulty. First, book losses are increasing, along with pressure from audits and public opinion. Second, judgments about the industry's future are highly uncertain; no one can provide irrefutable evidence for "buying now."
If the decision-maker bears the risk of "accountability for a single project's loss," then under any normal organizational rationality, they would not choose to increase their position at that time.
Retrenchment is the safest choice, and safety often overrides everything in the state-owned system.
The root reason Hefei could make the counter-cyclical decision still traces back to the first dimension: the fault-tolerant mechanism.
Precisely because there was a quantitative allowable loss rate as a backstop and a diligence-based exemption system, the decision-maker had the possibility to act based on industrial logic rather than personal risk-aversion logic at a time when everyone else was fearful.
There's another detail worth noting. Reportedly, in its industrial investments, Hefei adopted a "dual-track, parallel, independent decision-making" mechanism. The state-owned capital platform conducts project research and investment decisions according to market-oriented investment logic, while the government departments conduct investment attraction assessments and landing guarantees according to industrial policy logic. The two tracks do not interfere, ultimately coordinated at the municipal level.
This design is quite ingenious. It ensures the professionalism of investment decisions, not hijacked by short-term administrative considerations, while also ensuring the strategic nature of industrial layout, not led astray by the financial returns of a single project.
At critical counter-cyclical moments, this "dual-track parallel" structure allows long-term judgments based on industrial logic to penetrate the short-term fear rooted in financial metrics.
For cities seeking to improve their state-owned capital fund management systems, Hefei's practice suggests a specific direction. In strongly cyclical industries like integrated circuits and biopharmaceuticals, "counter-cyclical investment trigger clauses" can be pre-set. For example, when a specific sub-sector's prosperity index falls below a certain threshold, it automatically activates a special counter-cyclical investment quota, applicable to a more relaxed assessment framework.
This transforms "whether to invest counter-cyclically" from a case-by-case decision requiring repeated negotiation into a pre-agreed institutional arrangement.
So, how did Hefei's state-owned capital manage to earn a whopping trillion yuan?
My view is: the fault-tolerant mechanism ensured "daring to invest"; the industrial chain logic ensured "investing accurately"; and the institutional authorization for counter-cyclical action ensured "investing at the worst time."
These three components combine to form a complete closed loop, from front-end decision-making to back-end management.
It is the result of institutional design, not a product of luck.
But this loop is still missing the final piece: a mature exit mechanism.
Only when it is possible to "exit" after "entering," and only when "re-investing" is possible after "exiting," can this system truly complete its institutional construction.
Currently, this step is still underway.
For cities learning from the Hefei model, the real revelation is not "how many billions to invest in a project," but whether they can establish a complete set of institutional infrastructure that makes long-termism operable—for example, quantifiable fault tolerance, deep cultivation of industrial chains, authorization for counter-cyclical action, and channels for exit.
Missing any single link means learning only the superficial aspects.
For Hefei itself, Changxin's listing is not the finish line. It is both the fulfillment of a ten-year marathon and the starting point of an even more challenging journey ahead. How to transform the trillion-yuan paper profit into sustainable fiscal returns and re-investment capacity for industry will determine whether the "Hefei Model" becomes merely a legend to be retold or a replicable, promotable institutional paradigm.
This is a question we should continue to follow closely.
This article is from the WeChat public account "DongZhen ShangLue" by DongZhen ShangLue.
