The Hefei Model: Opportunities for Foreign Businesses within China’s Elite Sustainable Value Creation Ecosystems

This article describes and interprets the Hefei Model as an industrial-policy approach in which government deliberately invests in high-risk projects to support hyperscalers—elite firms that maintain sustainable value-creation relationships with stakeholders across local ecosystems. The analysis explicitly links the model to the normative aspects of elite theory, emphasizing elite agency, high coordination capacity and low transaction costs, institutionalized checks and balances between political and business elites, the central role of knowledge elites, and the prioritization of long-term sustainable value creation over extractive value transfers.

In Hefei, the elite system is portrayed as committed to generating value through genuine first-order productive activities—including risk origination—while permitting value transfers only insofar as they remain subordinated to sustainability objectives. Set against China’s “involution” (内卷), Europe’s stagnation and risk aversion, and concerns surrounding non-inclusive U.S. technology giants, the Hefei Model emerges as a distinctive policy experiment in which the state acts as a top-down venture capitalist. Operating within the framework of “government guidance and market-based operation” (政府引导、市场运作), government selects and invests in future elite business models—scalable firms with exceptional coordination capacity that are inclusive and do not rely on extractive value transfers.

The model is organized around three interrelated dimensions: (a) top-down risk taking to select future sustainable value-creation elite business models; (b) bottom-up ecosystem formation in ultra-competitive environments supported by frameworks designed to incentivize value creation and preempt extraction, articulated as “anchor firms → major projects → industrial value chains → industrial clusters” (龙头企业–重大项目–产业链条–产业集群) and operationalized through “invest-then-attract” (以投带引); and (c) the elite “Hefei mindset” (合肥思维), the soft normative layer that binds stakeholders through trust-building, disciplined state capacity, and long-term orientation. Key governance and implementation practices include the “three inquiry tests” (研判三问)—“ask scientists, ask investors, ask entrepreneurs”—and consensus decision-making via the “four-bench review” (四堂会审), while risk is institutionally normalized through explicit “risk tolerance” (风险容忍度).