New Delhi, June 13 (IANS) China has tightened oversight of its 23 trillion yuan (over $3 trillion) private fund industry amid growing concerns over inefficient capital allocation, fiscal risks and excessive state-backed investments in technology startups, a report has said.

According to an analysis by CNBC, the latest development comes after China’s State Council unveiled new guidelines to strengthen supervision of government investment funds, while local authorities reportedly sought details of financial exposure to fast-growing technology firm Dreame Technology.

The decision underscores Beijing’s concerns that local governments, eager to support strategic sectors such as artificial intelligence, robotics and semiconductors, have often poured public money into projects without adequate commercial evaluation, it said.

However, local authorities have increasingly competed to attract technology companies by offering generous funding support, resulting in substantial fiscal waste and higher financial risks.

The problem has intensified since China’s property sector downturn eroded a major source of local government revenue.

In response, many local administrations turned to equity investments through government guidance funds, hoping to generate returns by backing startups.

Experts – cited in the report — argue that local officials often lack the expertise of professional investors and may concentrate resources in a handful of companies, leaving public finances vulnerable when investments fail.

China had established more than 2,100 government guidance funds with targeted capital exceeding 11 trillion yuan by the end of 2025, raising concerns about overlapping investments and inefficient capital allocation, the report said.

While the model has helped create several successful technology companies, experts said Beijing’s latest intervention reflects growing recognition that unchecked state-backed investment can generate significant financial and governance risks, it added.

Moreover, due to geopolitical risk, Wall Street-affiliated American funds that had previously made investments in China have largely withdrawn in recent years, creating a void that local Chinese funds denominated in yuan must fill.

–IANS

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