China Weighs National M&A Fund to Fast-Track Tech Ambitions

Beijing signals a shift from pure venture funding to consolidation-led growth as it prepares the next five-year plan amid US rivalry

China is considering the creation of a national-level mergers and acquisitions (M&A) fund as part of a broader effort to accelerate technology innovation and rebalance economic growth, according to Xinhua News Agency. The move comes as policymakers roll out fresh measures to boost domestic demand and strengthen high-tech industries, against the backdrop of intensifying strategic competition with the United States.

A senior official from the National Development and Reform Commission (NDRC) said the proposed fund would help optimise government-backed investment vehicles and improve how capital is directed, with the aim of accelerating the development of what Beijing calls “new quality productive forces”—a term that broadly covers advanced and emerging technologies.

A policy shift ahead of the next five-year plan

Officials said they are now drafting an implementation plan to expand domestic demand from 2026 to 2030, a period that will define China’s next five-year economic blueprint. The NDRC said the plan will focus on better aligning consumption, investment and industrial policy, signalling a more coordinated approach to growth after years of reliance on exports and infrastructure spending.

A series of large-scale projects in high-tech industries will also be launched over the coming five years. Advanced manufacturing already accounts for more than 17% of the added value of large-scale industries, officials said, highlighting how central the sector has become to China’s economic strategy.

“We believe that consumption and investment, technology and industry, and urban and rural development will all unleash significant development potential,” said Zhou Chen, head of the NDRC’s department of national economy. He pointed to new energy, aerospace, biomanufacturing and artificial intelligence as areas poised for faster expansion.

The idea of a national M&A fund marks an evolution in China’s policy toolkit. Officials said they would take cues from the national venture capital fund launched in December, which focuses on early-stage technology startups, while studying the creation of an M&A vehicle to speed up industrial upgrading.

In a separate report, Bloomberg quoted NDRC vice chairman Wang Changlin as saying China would “explore establishing a national-level merger and acquisition fund.” He said authorities want to strengthen planning and guidance of government investment funds to promote innovation and accelerate the cultivation of “new productive forces,” without offering details on structure or size.

The emphasis on M&A suggests Beijing is looking beyond startup creation to scale-building and consolidation—helping domestic firms acquire technology, absorb weaker players and compete more effectively with global rivals.

Why M&A matters now

The proposed fund would build on existing policy tools, including the national venture capital fund backed by 100 billion yuan (US$14.36 billion) launched last month. Together, these mechanisms reflect growing urgency in China’s tech push, particularly in sectors where US export controls and trade restrictions have tightened access to advanced components.

As Wang put it, referring to US pressure on areas such as semiconductors: “Practice has proven that ‘strangleholds’ can’t hold back progress.” He added that China has “a powerful innovative spirit and immense potential for innovation.”

From an ecosystem perspective, an M&A fund could help address long-standing issues such as fragmented supply chains, duplicated R&D efforts and under-scaled technology firms—problems that venture funding alone has struggled to fix.

Domestic demand still the weak link

China’s renewed policy push follows uneven economic data for 2025. The economy grew 5%, meeting its official target, but consumption contributed only 52% of growth—a level economists widely see as low compared with developed markets. Net exports, by contrast, accounted for 32.7% of growth, the highest share since 1997, underscoring continued dependence on external demand.

Retail sales rose 3.7% last year but slowed sharply toward year-end, highlighting the challenge Beijing faces in reigniting household spending.

Fiscal support widens alongside industrial policy

Shortly after the NDRC briefing, the Ministry of Finance announced additional measures to stimulate activity. These include extending interest subsidies for personal consumption loans—now covering credit card instalments—through the end of 2026, and offering subsidised rates on fixed-asset loans for equipment upgrades.

The ministry also unveiled a 500 billion yuan (US$71.8 billion) guarantee programme to support micro, small and medium-sized private enterprises, aimed at everything from digital transformation to long-term financing for consumption-related businesses.

The policy push followed a call by Premier Li Qiang to strengthen innovation-driven growth and expand domestic demand.

What it signals for China’s tech ecosystem

Practically, a national M&A fund would reduce friction for domestic consolidation in sectors where China faces external restrictions (for example semiconductors and some advanced manufacturing supply chains). Officials framed the move as a way to optimise government investment vehicles and accelerate “new quality productive forces” — a policy goal that blends industrial upgrading with strategic resilience in the face of export controls and geopolitical pressure. That framing aligns with recent NDRC statements and Bloomberg reporting on policymakers’ intentions.

For founders and early-stage investors, the fund has three immediate implications. First, it expands exit and scale pathways: successful startups could be acquired or merged into larger national champions with state-backed backing, providing an alternative to IPOs or foreign acquirers. Second, it may concentrate strategic funding into a narrower set of sub-sectors (chips, AI, biotech, aerospace), as government capital targets national priorities — meaning startups outside these areas may find less direct lift. Third, while more state capital reduces funding gaps, it also raises the risk of market distortion and crowd-out, where private investors either follow state-led signals or pull back if they perceive lower returns or higher political risk. (See national VC and commercial bank technology funds launched in 2025 for similar patterns.)

M&A activity in strategic industries is likely to pick up. China’s semiconductor and advanced manufacturing sectors have already seen rising deal volume and state-supported consolidation in recent years; a dedicated M&A vehicle would further lower transaction costs and provide patient capital for domestic buyers, including state-owned firms and well-capitalised private groups. That could accelerate rationalisation of a fragmented supplier base and speed the diffusion of proprietary technologies across the industrial chain — a structural benefit for scaling hardware and deep-tech companies.

There are also risks to watch. State-directed consolidation can crowd out independent, market-led mergers where price discovery and commercial due diligence are strongest. Foreign acquirers and partners may face new barriers, complicating cross-border M&A and technology partnerships. Moreover, if policy-driven consolidation prioritises political or strategic criteria over commercial fit, integration failures and inefficient capital allocation become possible — outcomes that could depress returns and slow innovation over the medium term. Analysts have warned that heavy state intervention, while stabilising in the short run, can create longer-term distortions without careful governance and transparency.

For practical next steps, founders and investors should:

• Expect more state-backed buyers in strategic sectors and plan M&A narratives accordingly (IP protection, national relevance, manufacturing scale).
• Track where the national VC and potential M&A funds deploy early capital — those sectors will likely receive follow-on consolidation support.
• Prepare governance and financial reporting for larger, state-involved transactions (higher disclosure and political risk due diligence).
• Consider alternative markets and exit pathways if your company’s sector is not a national priority.

What comes next for China’s tech and venture landscape

China’s consideration of a national-level M&A fund signals a more mature and interventionist phase in its technology strategy—one that goes beyond startup creation to focus on scale, resilience, and control. By pairing early-stage venture funding with consolidation tools, Beijing is attempting to close a long-standing gap in its innovation system: the jump from promising technology to globally competitive industrial champions.

For founders, this marks a shift in how success may be defined. Building a standalone unicorn is no longer the only—or even the preferred—endgame in strategic sectors. Instead, startups that develop critical technology, defensible IP, or specialised manufacturing capabilities may increasingly find their most viable growth path through acquisition or merger into larger, state-supported platforms. This could shorten time-to-scale for some companies, while reducing pressure to pursue premature IPOs.

For investors, particularly domestic VCs and growth funds, the proposed M&A vehicle introduces both opportunity and constraint. On one hand, it broadens exit options in a market where public listings have become more selective and geopolitically sensitive. On the other, it reinforces the need to align portfolios with national priorities, as capital, policy support, and downstream consolidation are likely to cluster around a narrower set of “strategic” technologies such as semiconductors, AI infrastructure, aerospace, and advanced manufacturing.

At a macro level, the move reflects Beijing’s recognition that venture capital alone cannot solve structural weaknesses—from fragmented supply chains to under-scaled technology firms—especially under sustained external pressure. Consolidation-led growth offers a way to absorb shocks from export controls, internalise key technologies, and improve capital efficiency across the industrial stack. But it also raises execution risks: poorly governed mergers, political overreach, or crowding out of private capital could dampen innovation if not carefully managed.

Ultimately, the success of a national M&A fund will depend less on its size than on its governance—how deals are selected, how commercial logic is balanced with strategic goals, and how much room is left for market-driven decision-making. For the startup and venture ecosystem, the message is pragmatic rather than ideological: China’s next tech cycle will reward founders and investors who understand not just how to innovate, but how to integrate, scale, and fit into a state-shaped industrial vision.

Quick Takeaways

• China is considering a national-level M&A fund to complement its existing venture capital programmes and accelerate technology scale-up.
• The move reflects a policy shift from startup creation toward consolidation-led growth and industrial upgrading.
• Strategic sectors such as semiconductors, AI, advanced manufacturing, aerospace and biotech are likely to be primary beneficiaries.
• A state-backed M&A vehicle could expand exit options for startups, especially as IPO pathways become more selective.
• At the same time, increased state involvement raises risks around market distortion, governance, and reduced space for purely market-driven consolidation.
• For founders and investors, alignment with national priorities and readiness for M&A-led growth will matter more in the next funding cycle.