Shanghai launches engine fund for fast-tracking science to market

Shanghai is making a bold move into the future with a US$1.36 billion investment fund designed to reshape emerging industries.

The Shanghai Engine Fund, now officially registered, is ready to begin investments, with the public sub-fund selection process set to start soon.

This government-backed initiative aims to address the slow pace of tech commercialization and investor hesitancy with regards to unproven technologies. Its goal is to fast-track the transformation of scientific innovations into market-ready solutions.

Shanghai's vice mayor, Liu Duo, emphasized that the fund will promote local applications of cutting-edge scientific breakthroughs and support the development of "hard-tech" firms with a competitive edge.

"We are using master funds to incubate these firms and drive commercialization," she said.

Wei Fanjie, the fund's general manager, envisions it as an open innovation hub that attracts global talent – from scientists to entrepreneurs, startups and investors. By fostering a collaborative ecosystem, the fund aims to accelerate the development and practical application of breakthrough technologies.

The Shanghai Engine Fund will focus on six key industries: future health, information technology, energy, space, materials and advanced manufacturing.

It will target transformative technologies such as brain-computer interfaces, quantum computing, controlled nuclear fusion, and advanced energy storage systems – paving the way for innovations in biomedicine, energy and aerospace.

With a dual investment strategy, the fund will directly support strategic projects while sub-funds, acting as cornerstone investors, will provide critical resources – such as concept validation, talent recruitment and early-stage development. The initiative's ultimate goal is to bridge the gap between university labs and the marketplace, creating a vibrant innovation ecosystem.

"This fund's focus on the early '0-to-1' stage of tech development marks a strategic shift," Wei noted, acknowledging that this stage has often been overlooked by domestic venture capital.

The fund seeks to support the transition from early ideas to scalable, practical solutions.

Chen Datong, managing partner at Hua Capital, is preparing a 300-million yuan (US$41 million) sub-fund that will allocate about 80 per cent of its capital to early-stage projects from universities and research institutions.

He pointed out that while traditional venture capital has long favored growth-stage and pre-IPO companies, the "0-to-1" transformation remains a significant challenge, requiring more resources, patience, and specialized support than larger funds typically provide.

Zhang Linfeng, founder of DP Technology, sees the Shanghai Engine Fund as a crucial enabler in overcoming the "valley of death" that often traps early-stage scientific innovations.

"Scientists face immense challenges in moving from 'paper' to 'product,'" he said. The fund's support will ease these obstacles by connecting stakeholders and reducing the "explanation costs" that burden entrepreneurs.

DP Technology is exploring innovative solutions like AI for science.

Zhang believes that the fund could accelerate platform-based operations that integrate R&D with real-world applications in sectors like biomedicine and energy.

Innovation VC push

The fund's establishment aligns with broader reforms in China's state-owned venture capital sector.

In December last year, two key government bodies – the State-owned Assets Supervision and Administration Commission and the National Development and Reform Commission – introduced policies encouraging state-owned enterprises to create venture capital funds that target early-stage startups, small businesses, and hard-tech innovations.

Building on this, the General Office of the State Council issued guidelines in January this year to strengthen these funds, directing them to focus on critical sectors, attract more private capital, and support the growth of modern industries. These funds are designed to be stable and long-term, driving new economic growth while withstanding economic fluctuations.

Shanghai, a key player in China's venture capital ecosystem, is rapidly developing a model to support disruptive innovations.

According to the 2024 Shanghai Private Equity and Venture Capital Industry Development Report, the city manages more than 9,000 private equity and venture capital funds, with assets totaling more than 2.25 trillion yuan – about a quarter of China's total.

In the first eight months of 2024, Shanghai's newly established government-backed "guiding funds" surpassed 90 billion yuan, overtaking Beijing to become the largest in the country.

Shanghai's strategic investment in three key sectors – integrated circuits, biomedicine and AI – shows early promise. In March 2024, the Shanghai State-owned Assets Supervision and Administration Commission launched a funding initiative with nearly 100 billion yuan committed to a 15-year plan. These sectors are already booming, with Shanghai's high-tech output reaching 1.6 trillion yuan in 2023 and manufacturing output growing by 8.6 per cent year-on-year as of Q3 2024.

BCI innovation surge

A key area of focus is brain-computer interface (BCI) technologies, expected to be a game-changer by 2025.

As noted by Nature magazine, China plans to test BCI technologies that could rival those from Elon Musk's Neuralink.

Hong Bo of Tsinghua University's Weixian College sees BCIs as a leap from individual to collective intelligence.

"It's a global race, with players like Neuralink and Synchron focusing on electrodes, chips, algorithms and neural repair," he said.

Shanghai is aggressively positioning itself as a global hub for BCI innovation, with a new action plan aiming for significant product releases by 2027.

The plan, which was just released this month, targets the release of more than five BCI products by 2027 to help patients with conditions like aphasia and paralysis regain language and motor functions. It also aims to foster more than five innovative BCI enterprises and attract more than ten domestic industry leaders. By 2030, Shanghai envisions the full clinical application of BCI products, cementing its role as a global innovation hub.

Shanghai's push into BCI is exemplified by companies like Hong's team, which is developing advanced, minimally invasive BCI technologies for clinical use. Trials at Shanghai's Huashan Hospital have shown promise, with patients regaining abilities such as the ability to drink.

"We've completed three trials, with five more ongoing," Hong said. "We hope to collaborate with regulatory scientists, clinical experts and patients to advance this world-first large-scale brain-computer interface trial."

Hong's team, partnered with Neuracle, is setting up in Shanghai's Zhangjiang Cell Park, planning a facility capable of producing 10,000 implantable BCIs annually.

Shanghai firm NeuroXess has developed a 256-channel implantable flexible interface, which has also shown remarkable recovery results in trials at Huashan. It plans a semi-implantable wireless version for the Spring Festival and a fully implantable version the following year.

Tao Hu, NeuroXess's founder, notes the path to clinical use involves rigorous preclinical trials.

"It could take around three years to fully realize BCI products in clinical settings," he said, highlighting the journey ahead in this transformative field.