The municipal government of Beijing is setting aside billions to invest in cash-strapped private companies, primarily in the technology sector, that face financial risks from having pledged shares to borrow funds, Caixin reports.
Beijing’s deputy mayor, Yin Yong, said on Monday that of the over 150 private listed companies in the city, “most…have engaged in this kind of financing.”
Many firms in China’s private sector have seen financing channels squeezed in the past year, leading to some company bosses offering their shares as collateral for bank loans. The recent market rout, however, could bring a liquidity snap for borrowers as share prices tumble.
According to Yin, the funds will be angled towards investment rather than strategic takeovers of troubled firms. “These funds are managed by professional third-party institutions, so we can ensure that the funds are operated purely from a market perspective without interference from the government,” said Yin.
There will be limits in place too. Government-supplied capital will not surpass 50% of a company’s total capital, and the funds will get more expensive over time to incentivise moving away from state assistance.