Xiaomi Launches $1.7 Billion Fund in Hubei

(Beijing) — Smartphone maker Xiaomi Inc. and two partners in central China’s Hubei province will set up a 12 billion yuan ($1.74 billion) fund to promote the company’s “ecosystem” of products and services, as the former highflier tries to reverse its downward slide over the last two years.

The deal will see Xiaomi, the Hubei provincial government and the government-backed Yangtze River Industry Fund all provide roughly equal amounts to the new Yangtze River Xiaomi Industry Fund, according to a strategic agreement signed on Wednesday. The fund is expected to officially launch in the third quarter.

Xiaomi is best known for its smartphones, though that part of its business has stalled over the last two years after a meteoric rise that saw the company briefly become the world’s third-largest brand.

Company chief and co-founder Lei Jun, a Hubei native, has said he wants to build an “ecosystem” of interconnected products and related services that includes not only smartphones, but other devices like internet-connected TVs and smart home appliances.

The new fund will be used to promote companies developing such products and devices, and also for additional causes backed by Lei, whose other investments include software makers Kingsoft Corp. Ltd. and its affiliated Cheetah Mobile Inc.

“Xiaomi is a leading internet technology company, and Lei Jun is from Hubei,” said Wang Hanbing, chairman of the Yangtze River Industry Fund. “We are positive about Xiaomi’s future prospects, and this investment represents our vote of confidence.”

The support from Lei’s home province comes as Xiaomi tries to right its ship following a downward slide over the last two years. Some once likened the company to China’s equivalent of Apple Inc. during Xiaomi’s meteoric rise, which saw Xiaomi briefly take the top position in its home smartphone market, the world’s largest.

But the company quickly faded for a number of reasons, including intense competition in China and its reliance on an online-only sales model. Xiaomi has taken a number of steps to try to get back on track, including abandoning its online-only model and trying to create more upscale products with unique features and designs.

According to the latest quarterly data released on Thursday by IDC, Xiaomi’s China sales slipped 7.5% in the first quarter of 2017 compared with a year earlier. But the company had a small positive development as its first-quarter China market share rose to 9% in the period from 7.4% in last year’s final quarter.

Contact reporter Yang Ge (geyang@caixin.com)