Chapter 1 General Provisions

Article 1 To fully harness the concentrated support and industrial guidance capabilities of the Liwan District Industrial Investment Fund in Guangzhou (the “Industrial Investment Fund”), and to streamline the management and operation of the Industrial Investment Fund, these measures are enacted, aiming to expedite the establishment of a modern industrial system, foster the innovative transformation, and promote the high-quality development of industries in Liwan District. These measures are formulated in accordance with the “Notice of the Ministry of Finance on Printing and Distributing the Interim Measures for the Management of Government Investment Funds” (CY [2015] No. 210), the “Notice of the Guangzhou Municipal Finance Bureau on Printing and Distributing the Guangzhou Municipal Government Investment Fund Management Measures” (SCGZ [2020] No. 2), and other relevant documents. They are tailored to the specific conditions of Liwan District and apply to the management activities, including the selection, investment, supervision, assessment, and exit of the entrusted management institution of the Industrial Investment Fund.

Article 2 The Industrial Investment Fund, as referred to in these measures, denotes a government investment fund initiated and established by the district government using fiscal funds. Operating in a market-oriented manner and non-profit-driven, it seeks to channel social capital into investments in modern urban industry and scientific and technological innovation. The fund aims to support the development and growth of modern urban industrial enterprises and scientific and technological innovation enterprises, thereby promoting the high-quality development of Liwan District.

Article 3 The formation of the Industrial Investment Fund adopts the structure of a limited partnership. The government's investment scale is organized through the district government's budget, with necessary funds being disbursed from the budgetary allocation of the District Science, Technology, Industry, and Information Technology Bureau. These funds are incrementally transferred to Guangzhou Liwan Development Group Co., Ltd. (referred to as “Liwan Development Group”). Serving as a limited partner, Liwan Development Group, in collaboration with the entrusted management institution, establishes a limited partnership enterprise (Industrial Investment Fund). Liwan Development Group's subscribed capital sets the limit for its responsibility for the partnership enterprise's debts. Liwan Development Group is not involved in the affairs of the partnership enterprise. The entrusted management institution acts as the general partner, overseeing the day-to-day operations, investments, and exits of the Industrial Investment Fund, and assumes unlimited liability for the debts of the partnership enterprise. The government-funded portion is planned and allocated by the District Science, Technology, Industry, and Information Technology Bureau in conjunction with the District Finance Bureau. Adjustments can be made based on annual budgetary arrangements and the actual fund operations. Additionally, the Industrial Investment Fund may accept donations without compensation from individuals, enterprises, or social organizations.

Article 4 The management and operation of the Industrial Investment Fund adhere to the principles of “government guidance, market operation, scientific decision-making, and risk prevention”. The entrusted management institution formulates comprehensive investment management systems and establishes an investment decision-making committee responsible for matters related to investment, management, and exits. Committee members are appointed by the entrusted management institution. To ensure policy guidance, Liwan Development Group assigns a representative as an observer to participate in the investment decision-making committee discussions. In instances of violations, irregularities, or deviations from policy guidance by the Industrial Investment Fund, the observer holds the right to veto but does not engage in the operational business, daily management, and investment decisions of the Industrial Investment Fund.

Article 5 The Industrial Investment Fund adheres to the principle of “the one who establishes the fund manages it and acts on behalf of the government investor”. The District Science, Technology, Industry, and Information Technology Bureau, as the competent department of the Industrial Investment Fund, acts on behalf of the investor, leading the establishment of the fund, determining investment catalogs and directions, overseeing, evaluating, and promoting the policy goals and effects of the Industrial Investment Fund. In collaboration with the District Finance Bureau, the entrusted management institution is selected and is responsible for fund supervision and performance evaluation. Liwan Development Group, as the investor's representative, aids in the specific implementation of the work as required by the District Science, Technology, Industry, and Information Technology Bureau.

Chapter 2 Entrusted Management Institution

Article 6 The selection of the entrusted management institution will adhere to the pertinent regulations outlined in the “Guangzhou Municipal Government Investment Fund Management Measures” (SCGZ [2020] No. 2) through a comprehensive selection process. The District Science, Technology, Industry, and Information Technology Bureau, in collaboration with the District Finance Bureau, will execute an entrusted management agreement with the chosen entrusted management institution.

Article 7 The District Science, Technology, Industry, and Information Technology Bureau, along with the District Finance Bureau, will determine the amount of entrusted management funds based on the annual fund allocation plan for the Industrial Investment Fund. The entrusted management institution is required to administer the Industrial Investment Fund in accordance with relevant laws and regulations, district government requirements, and the provisions specified in the entrusted management agreement. Adjustments to the amount of entrusted management funds can be made by the District Science, Technology, Industry, and Information Technology Bureau and the District Finance Bureau based on the annual budget allocation and actual operational conditions. The standard entrusted management period is 10 years, with possible adjustments made by the District Science, Technology, Industry, and Information Technology Bureau and the District Finance Bureau according to actual operational circumstances.

Article 8 The entrusted management institution must fulfill the following criteria:

(1) Possess independent legal status as a company;

(2) Hold registered capital of no less than 100 million yuan;

(3) Employ at least 5 professionals with over 3 years of experience in investment funds and qualifications in the fund industry;

(4) Maintain a robust investment fund management system;

(5) Demonstrate successful experience as contributors in the establishment and management of investment funds;

(6) Uphold sound financial conditions for the past three years, with no significant penalties from administrative or judicial authorities, and strictly adhere to the management of government-funded funds in line with the entrusted management agreement;

(7) Comply with other national and provincial laws and regulations.

Article 9 The entrusted management institution's responsibilities should be clearly outlined in the Industrial Investment Fund entrusted management agreement, encompassing, but not limited to:

(1) Establishing a robust internal decision-making and risk control mechanism;

(2) Conducting due diligence on projects, preparing due diligence reports, performing investment analysis, and formulating investment plans;

(3) Implementing approved investment plans, signing investment agreements;

(4) Managing projects post-investment, providing value-added services to invested enterprises (projects), supervising and guiding the operation of invested enterprises (projects);

(5) Formulating exit plans and overseeing project exits;

(6) Regularly reporting the fund's operational status, project investment management, and other significant matters to the District Science, Technology, Industry, and Information Technology Bureau and the District Finance Bureau;

(7) Promptly remitting dividends, exits, and other funds (including principal and profits) to the national treasury as required;

(8) Executing other pertinent investment operations.

Article 10 The entrusted management institution should select a commercial bank with branches in Liwan District as the custodian bank to establish a dedicated account for the Industrial Investment Fund, implementing specialized account management for the entrusted managed Industrial Investment Fund. The Industrial Investment Fund entrusted management agreement should explicitly outline the conditions and specific requirements for selecting the custodian bank, principally meeting the following conditions and requirements:

(1) Recognized by relevant national authorities as possessing the qualification for fund custody;

(2) Maintaining sound financial conditions for at least the last three years, with no significant penalties from administrative or judicial authorities;

(3) Prioritizing institutions that maintain a positive cooperative relationship with government departments in conducting science and technology financial business.

Chapter 3 Investment Focus Areas

Article 11 The Industrial Investment Fund is earmarked for investment in enterprises operating within the administrative boundaries of Liwan District. The primary emphasis is on supporting modern urban industries, including urban consumer industries, biopharmaceuticals, health industries, new-generation information technology, new materials industries, new energy and smart connected vehicles, smart equipment, future industries, and technological innovation fields. The central focus is directed towards investing in the construction projects of modern urban industries or technology innovation industry carriers, as well as seed-stage, start-up stage, growth stage, and innovative enterprises exhibiting development potential.

Article 12 The following scenarios qualify as investments in enterprises within the administrative area of Liwan District:

(1) Enterprises with independent legal personality registered in Liwan District;

(2) Enterprises located outside Liwan District that establish subsidiaries within Liwan District (the subsidiary must become one of large-scale industrial enterprises, qualification-grade construction industry enterprises, wholesale and retail enterprises with quotas, and large-scale service industry enterprises included in Liwan District's statistics within 2 years of completing the investment).

Chapter 4 Project Investment Management

Article 13 The operational mechanism of the Industrial Investment Fund centers around equity investment. The cumulative investment amount in a single enterprise (project) should not exceed 10% of the subscribed scale of the Industrial Investment Fund.

Article 14 The entrusted management institution is responsible for conducting due diligence on investment projects. For projects aligning with the fund's investment criteria and requiring financing, the entrusted management institution must adhere to industry-recognized ethical norms and business standards. It should conduct due diligence diligently, responsibly, honestly, and with a focus on creditworthiness, preparing a comprehensive “Due Diligence Report” and corresponding work documents.

Article 15 Decisions related to investment projects made by the entrusted management institution should be documented through resolutions by the investment decision-making committee. Projects that meet the investment criteria and have undergone due diligence may be submitted to the investment decision-making committee for review and decision. Only after approval by the investment decision-making committee should investment and exit processes be executed.

Article 16 The entrusted management institution is tasked with executing investment projects. For projects sanctioned through the investment decision-making process, the entrusted management institution must expeditiously finalize legal documents, such as investment agreements, and fulfill investment payments.

Article 17 The entrusted management institution must handle the day-to-day management of investment projects:

(1) Assume specific responsibilities for post-investment tracking and project management. In addition to monitoring the operational progress of invested enterprises (projects), it may offer value-added services like strategic consulting, capital operation advice, resource alignment, team development, and post-round financing, facilitating the rapid growth and value addition of enterprises;

(2) Recommend individuals to assume roles such as directors and supervisors of the invested enterprise (project) as per the terms of the investment agreement;

(3) Establish a dynamic risk monitoring mechanism for invested enterprises (projects). In the event of significant risk issues arising in invested enterprises (projects), prompt reporting to the District Science, Technology, Industry, and Information Technology Bureau is essential, accompanied by proposed response and solution strategies.

Chapter 5 Risk Management

Article 18 The entrusted management institution must establish a fund investment decision-making and risk constraint mechanism in accordance with relevant regulations. It should enhance post-investment management to effectively mitigate risks that may arise during the operation of fund investments.

Article 19 The funds of the Industrial Investment Fund may not be involved in the following activities:

(1) Participating in activities beyond financing guarantees, such as guarantees, mortgages, entrusted loans, etc.;

(2) Investing in secondary market stocks, futures, real estate, securities investment funds, corporate bonds rated below AAA, trust products, non-principal-guaranteed wealth management products, insurance plans, and other financial derivatives;

(3) Providing sponsorship or donations to any third party;

(4) Attracting or indirectly attracting deposits, providing loans, and fund borrowing to third parties;

(5) Undertaking unlimited joint and several liabilities for foreign investments;

(6) Issuing trusts or collective wealth management products to raise funds;

(7) Engaging in other activities prohibited by national laws and regulations.

Chapter 6 Incentive and Constraint Mechanism

Article 20 The entrusted management institution imposes a management fee, with disbursement from the limited partnership enterprise. The management fee is pre-allocated based on the qualified assessment level and is disbursed after determining the annual assessment results. Calculated based on the actual paid-in scale of the fund, the annual management fee rate for the entrusted management institution is determined through the annual assessment results of the District Science, Technology, Industry, and Information Technology Bureau and the District Finance Bureau. It should generally not exceed the level of government investment fund management fees in the province during the same period. The specific criteria are as follows:

(1) If the assessment result is at a qualified level, the annual management fee is paid at a rate of 2% of the actual paid-in scale of the fund.

(2) If the assessment result is at an unqualified level, the annual management fee is paid at a rate of 1% of the actual paid-in scale of the fund.

(3) If there are two consecutive unqualified assessments or a cumulative total of four unqualified assessments, the qualification of the entrusted management institution can be terminated in advance.

Chapter 7 Exit Strategy

Article 21 The standard term for a limited partnership enterprise should generally not exceed 10 years. In case of the need to terminate and fully recover funds, the District Science, Technology, Industry, and Information Technology Bureau will notify the entrusted management institution, which will proceed with the disposal according to the established procedure. If the term expires with ongoing investment projects yet to complete their exit, the limited partnership enterprise may, with district government approval, extend the term until all projects have exited. During the extended term, no new investment projects shall be initiated.

Article 22 The entrusted management institution is responsible for managing the exit of investment projects, employing methods such as selling on the secondary market after equity listing, agreement transfer, repurchase, and liquidation. It encourages and supports the entrepreneurial team of the invested enterprise to repurchase equity according to the exit conditions and prices stipulated in the investment agreement. Once the investment project meets exit conditions, the entrusted management institution should formulate an exit plan and proceed with project exit following review and approval by the investment decision-making committee.

Article 23 Following project exits, profit distribution adheres to the “return of capital first before profit” principle. It is distributed based on the proportion of the actual paid-in capital of all partners. In the case of a surplus, the government's invested portion is distributed first according to the benchmark return rate (as stipulated by the entrusted management institution in the partnership agreement, etc.). After distributing the benchmark return, the remaining excess returns are allocated between the government's invested portion and the entrusted management institution according to the ratio stipulated in the partnership agreement. Investment returns and interest belonging to the government should be promptly and fully handed over to the national treasury in accordance with the relevant regulations of the financial treasury management system. Losses of the investment fund are jointly borne by the contributing parties, and the government has limited liability up to the amount of its contribution.

Article 24 When the government exits the industrial investment fund, other contributing parties have the right to prioritize the purchase of the government's invested portion of the industrial investment fund shares. For the government's invested portion of the fund shares held within 5 (inclusive) years, the transfer price can be determined based on its original investment amount.

Article 25 No assurances shall be given to other contributing parties that the principal of the industrial investment fund will not incur losses, and no minimum return promises shall be made, except as otherwise provided by the state.

Article 26 After the termination (including dissolution and bankruptcy) of the limited partnership enterprise, the entrusted management institution shall organize liquidation in accordance with relevant laws and regulations. After settling the claims of creditors, the remaining property shall be distributed on the principle of equal rights for equal shares. The entrusted management institution shall report the liquidation situation to the District Science, Technology, Industry, and Information Technology Bureau.

Chapter 8 Oversight, Inspection, and Reporting Framework

Article 27 The industrial investment fund will undergo performance evaluations by the district finance bureau and be subject to the supervision of fund operations by the district audit bureau.

Article 28 Within 20 working days of completing each project's investment or exit, the entrusted management institution must submit a written report to the District Science, Technology, Industry, and Information Technology Bureau and the district finance bureau.

Article 29 The entrustment management agreement should outline the establishment of a regular reporting system. Within 15 days after the end of each quarter, the entrusted management institution is obligated to submit a written report to the District Science, Technology, Industry, and Information Technology Bureau and the district finance bureau. This report should cover the fund's operational status, balance sheet, investment gains and losses, and other significant matters that may impact investor rights. Reports should include balance sheets, income statements, cash flow statements, financial fund deposit statements, fund project statements, and other relevant statements.

Article 30 The district finance bureau, following the “Financial General Accounting System” (CK [2022] No. 41) and the “Interim Measures for the Administration of Government Investment Funds” (CY [2015] No. 210), among other relevant documents, will document the assets and equity formed by the government's invested portion in the industrial investment fund.

Article 31 The entrustment management agreement should specify that in the event of significant issues such as illegal activities, violations of regulations, or the possibility of significant losses in investment project exits during fund operations, the entrusted management institution must submit a written report to the District Science, Technology, Industry, and Information Technology Bureau and the district finance bureau within 5 working days of discovery.

Article 32 If issues or risks of dereliction of duty are discovered within the entrusted management institution, the District Science, Technology, Industry, and Information Technology Bureau may provide written or verbal corrective opinions. If it is determined to be illegal or negligent behavior, the entrusted management institution is legally responsible for the corresponding losses incurred. For investments made in accordance with the law and regulations and decisions made through the prescribed procedures, the entrusted management institution will not be pursued for responsibilities for losses due to force majeure, policy changes, or other uncontrollable factors.

Article 33 Establish a performance assessment mechanism for the management and operation of fund investment funds. The assessment, based on overall efficiency, comprehensively evaluates the policy objectives and effects of the industrial investment fund without imposing rigid assessments on individual economic indicators such as the profit or loss of a single investment project. The assessment results are linked to the management fee rate that the entrusted management institution can extract for the current year.

Chapter 9 Additional Provisions

Article 34 Matters not covered by these measures shall be subject to the relevant regulations of the Guangzhou Municipal Government's investment fund management system.

Article 35 These measures shall be interpreted by the District Science, Technology, Industry, and Information Technology Bureau and shall be implemented from the date of publication, with a validity period of 5 years.

Method of Public Disclosure: Active Disclosure