HANGZHOU, CHINA – JUNE 02: General Secretary of the Central Committee of the Lao People’s Revolutionary Party and Lao President Thongloun Sisoulith watch the operation of the DR02 humanoid robot at Deep Robotics on June 2, 2026 in Hangzhou, Zhejiang Province of China.
Wang Gang | China News Service | Getty Images
The rapid capitalization of the world’s first technology in China has accelerated this month.
Just a few hours ago last Friday, China’s city government ordered companies to disclose their financial ties to robot vacuum maker Dream Technology, and China’s State Council issued strict regulations to tighten oversight of the country’s 23 trillion ($3.4 trillion) private equity fund industry.
The events, in quick succession, underscored Beijing’s tough balancing act to try to compete with US technological dominance. While the state is pouring money to support China’s technological ambitions, there are no regulatory periods and market forces to prevent widespread misappropriation.
Beijing is also strengthening the co-investment model that local authorities have adopted in recent years to attract businesses to their regions, said Dan Wang, China director at Eurasia Group.
Local governments often “rush for cooperation” in strategic areas, creating financial waste and increasing the central government’s debt risk, Wang said.
China’s local governments have sought to get out of the country’s capital market — which has been torn apart since the housing crisis in the early 2020s — to equity capital, using regional capital and state-controlled funds to fund early dividends and use capital gains as a new source of revenue.
US funds linked to Wall Street that were once invested in China have seen large outflows in recent years due to the country’s risk, leaving a gap for local Chinese-denominated yuan funds to fill.
Local officials can’t really evaluate projects the way professional investors do, and they often go in with one or a few hopes — leaving public funds exposed when the betting is sour, Wang added.
What’s going on
Dream became the largest robotic vacuum manufacturer in the world by sales in the first quarter, according to research specialist IDC, with fast-growing locations in Europe and the US.
Along with the aggressive expansion of other enterprises in China, since its founding in 2017, Dreme has produced nearly 1,000 related businesses, including electric cars, mobile phones, humanoid robots, bubble tea and satellite networks. Founder Yu Hao said in January that he is building an ecosystem that will “become the first $100 trillion company in human history.”
That spread has come under scrutiny in recent weeks. The city government in Jiangsu province, one of China’s largest electronics manufacturing areas, has asked local companies to assess their exposure to companies linked to Dreme, including investment size, capital expenditure and business performance, according to state-backed media.
Yu’s Weibo social media account has also been suspended, preventing the outspoken founder from commenting on the virus, according to state-linked media.
China’s state council, Changzhou municipal government and Dreme did not respond to CNBC’s request for comment.
Most of Dreme’s expansion was done with government money. Its Sky Factory Venture Capital Fund manages 41.6 billion yuan, according to state-backed media, about 80% of which is taken from local government industry funds in Suzhou, Xiamen and other cities. Almost all of its 29 funds are reported to involve state-owned local capital and spread across more than 10 cities.
Reflecting the proliferation of financing structures, China’s asset management association this month also called for more disclosure when a fund invests more than 90% of its assets in a single fund.
‘Patient fee’
The building shows how China is funding its industrial strategy.
Local authorities have been encouraged to invest in regulatory funds as “patient money” – they support startups in long-term, uncertain environments and give them time to grow – but they inevitably invite companies to chase funding by dressing up as government priorities, said Tilly Zhang, industrial policy analyst at Gavekal Dragonomics.
While US channels support tech companies indirectly through purchases, grants and tax breaks, Chinese governments at all levels take direct stakes – putting public money into equity risk, exit risk and governance exposure.
That also raises the pressure on companies to deliver, even in risky industries — and much of the money comes from government-linked funds that are drawn into technology because it’s politically expedient, not because they have the technical know-how or investment experience to back it up.
Local governments often “lack the expertise to distinguish between the reliable and the loopholes,” Zhang said, pointing to a 2021 case in which a runaway semiconductor project in Wuhan cost the government nearly 15 billion yuan.
Research by the Rhodium Group found that China’s local governments have created thousands of such funds over the past decade, often generating double investment and capital spending. By the end of 2025, China had established more than 2,100 state-owned mutual funds with a target capital of more than 11 billion yuan, according to official figures.
“Singapore has Temasek. In China, all levels of government have their own Temasek,” said Bob Chen, a Shanghai-based investor in renminbi-denominated funds, referring to Singapore’s sovereign wealth fund.
The new guideline of the National Council aims at that model, it wants “strict control on the establishment of new public investment funds,” and prevents regions and regions from setting up new funds without permission from the highest levels of government.
The laws increase oversight at the city and provincial levels, Chen said.
‘Spray and pray’ he approached
The country’s equity investment model, for all its flaws, has produced wins and supported the rapid growth of some of China’s tech giants. Hefei province’s early investments in EV maker Nio and manufacturer CXMT have made the city the poster child for state investment.
We describe China’s innovation drive as ‘big in scale but low in productivity’ — a ‘spray and pray’ approach that produces big results but has a high failure rate.
Yuen Yuen Ang
Alfred Chandler Chair Professor of Political Economy
Small towns that missed out on the semiconductor and mainstream AI waves were hunting for the next best thing, Chen said.
“They are eager to develop good companies but they are not in a position to win strong national projects like chips,” he said. “So they went looking for the underlying theme of customer tech. Dreme was giving them exactly what they were looking for.”
Yuen Yuen Ang, a professor of political economy at Johns Hopkins University, described China’s innovation drive as a “spray and pray” approach that produces great results but with a high failure rate,” and judged less on efficiency than on the fact that it produces few real champions.
The Dreme episode fits into “a repetitive phase in the general policy cycle: getting national priorities together, enduring important goal games and waste, and then fixing that,” he said.
As Beijing consolidates its power, lower-class governments will feel the squeeze first.
If equity investment is cut at the regional level, “there will be no other options left for local governments to drive investment,” Chen said.
