# What is Medium and Long-term Capital? Where Does It Flow and What Role Does It Play?

## Definition of Medium and Long-term Capital

Medium and long-term capital refers to funds with investment horizons typically exceeding one year, including capital from various sources such as banks, insurance companies, pension funds, investment funds, and other institutional investors. These funds are characterized by longer holding periods and lower liquidity requirements compared to short-term capital.

## Capital Flow Directions

Medium and long-term capital primarily flows toward:

1. **Infrastructure Projects** - Transportation, energy, telecommunications, and water conservancy projects
2. **Real Estate Development** - Long-term residential and commercial property projects
3. **Manufacturing and Industry** - Production capacity expansion and equipment upgrades
4. **Technology and Innovation** - R&D investments and emerging industry development
5. **Government Bonds and Securities** - Long-term fixed-income investments
6. **Equity Markets** - Stock investments with longer holding periods

## Key Functions and Roles

1. **Economic Growth Driver** - Provides sustained capital support for large-scale projects and economic development
2. **Structural Optimization** - Facilitates industrial upgrading and resource allocation efficiency
3. **Risk Mitigation** - The longer timeframe allows for better risk distribution and hedging
4. **Stability Enhancement** - Reduces market volatility compared to short-term speculative capital
5. **Asset Formation** - Accumulates social wealth and creates long-term productive assets
6. **Employment Creation** - Supports job creation through large infrastructure and industrial projects

What is medium- and long-term capital? Where does this capital flow, and what role does it play?

— Netizen “XiaoduoDuo”

This year’s “Government Work Report” proposed “continuing to deepen comprehensive reforms in capital market investment and financing, and further improving the mechanism for medium- and long-term funds to enter the market,” which has attracted widespread market attention.

In response, some netizens asked: “What is medium- and long-term capital? Where does this capital flow, and what role does it play?” These questions directly address the deep impact of policy changes on the market.

So, what is medium- and long-term capital? Simply put, it refers to those investments with long durations that are not keen on short-term speculation—“long money” that pursues long-term, stable returns rather than short-term price fluctuations. This capital mainly comes from large institutions, including various “pensions,” such as the National Social Security Fund and enterprise annuities; insurance funds, which are the long-term investment portions of premiums collected by major insurance companies; and asset management products like public funds, especially those focused on long-term value investing.

Regarding the flow of “long money,” medium- and long-term capital does not chase short-term market hotspots but prefers companies with long-term competitiveness. Specifically, the main investment directions are twofold:

First, core assets and value blue chips. Large listed companies with stable operations, solid industry positions, and consistent high dividends are the foundational holdings for pensions and insurance funds. These companies provide stable dividend income and serve as asset safety nets.

Second, new productive forces and technological growth. As economic restructuring continues, more medium- and long-term funds are increasing their investments in technological innovation, advanced manufacturing, green energy, and related fields. These funds focus on the growth potential of these sectors over the next few years or even decades. For example, in high-end manufacturing and new energy industries, the presence of social security funds and other medium- and long-term capital can already be seen.

For ordinary investors, the entry of medium- and long-term funds can act as a “market stabilizer.” These funds tend to trade less frequently and prefer “buy and hold” strategies, which can effectively reduce irrational market fluctuations and serve as a “stabilizing force,” making the market operate more smoothly.

Additionally, the participation of medium- and long-term funds can promote the development of a value investment ecosystem. They support companies that truly create value with real capital, guiding market resources from “speculating on concepts” to “focusing on performance,” and fostering a healthy, rational investment culture.

It is worth noting that compared to the 2025 “Government Work Report” statement about “vigorously promoting the entry of medium- and long-term funds,” the 2026 formulation of “further improving the mechanism for medium- and long-term funds to enter the market” reflects a profound shift.

In fact, the market value of A-shares held by these medium- and long-term funds has already become substantial. By the end of 2025, the total holdings of various medium- and long-term funds in the circulating A-share market value reached about 23 trillion yuan. Wu Qing, Chairman of the China Securities Regulatory Commission, stated at the March 6 National Two Sessions economic press conference that currently, public funds, social security, pensions, and insurance funds hold over 50% more A-shares in circulation.

After achieving certain results in “vigorously promoting the entry of medium- and long-term funds,” the policy focus has shifted from the quantity phase of “encouraging more money to come in” to the quality phase of “making the money stay and hold longer.”

Key reforms in performance evaluation mechanisms are underway. Previously, some institutions had short-term performance assessment cycles (such as annual reviews), which forced investment managers to focus on short-term stock price fluctuations. Now, policies are promoting longer-term assessments of 3 to 5 years or more, enabling investment behaviors to truly focus on the long term.

In summary, further improving the mechanism for medium- and long-term funds to enter the market aims to cultivate a “long-termism” ecosystem in A-shares. When more “long money” is willing to come and stay, a more mature and stable capital market led by medium- and long-term funds will accelerate formation. For ordinary investors, as the market environment becomes more rational, they can better share in the dividends of China’s high-quality economic development.

Source: Financial Times

Reporter: Li Ziqin

Editor: Yang Zhiyuan