The World Economy Wreckers Of Beijing

The desperate suzerains of the Red Ponzi are incorrigible. There appears to be no insult to economic rationality that they will not attempt in order to perpetuate their power, privileges and rule.

So now comes the most preposterous gambit yet. Namely, a veritable tsunami of state handouts to foster, yes, capitalist entrepreneurs!

That’s right. As described by Bloomberg, Premier Li Keqiang gave the word, and, presto, nearly $340 billion poured into an instantly confected army of purported venture capital funds run by local government officialdom all over the land.

China is getting into the venture capital business in a big way. A really, really big way.

The country’s government-backed venture funds raised about 1.5 trillion yuan ($231 billion) in 2015, tripling the amount under management in a single year to 2.2 trillion yuan ($340 billion), according to data compiled by the consultancy Zero2IPO Group. That’s the biggest pot of money for startups in the world and almost five times the sum raised by other venture firms last year globally,according to London-based consultancy Preqin Ltd.

Really? These are the same folks who built themselves a 1.2 billion ton steel industry in less than two decades, representing double what they can actually use and far more capacity than the rest of the world combined. That freakish industrial eruption is now tumbling into a red hole of losses, decay, abandonment and waste, but never mind. Now the Beijing comrades are going to seed venture capitalists at 5X the rate of the entire planet?

It puts you in mind of Mao’s Great Leap Forward, which endeavored to put a steel furnace in every Chinese farmer’s back yard. Of course, when they melted down their plows and hoes for scrap, the resulting leap was not exactly forward.

The only difference is that today’s Chinese leaders wear business suits, speak the lingo of western finance and dye their hair black.Yet the very idea that Beijing could wave a wand and launch 1,600 high-tech incubators for start-ups within a few months time and mobilize 2.2 trillion yuan ($340 billion) of venture capital is a measure of the incendiary lunacy which has gripped the Red Ponzi:

The money’s in what are known as government guidance funds, where local and central agencies play some role. With 780 such funds nationwide and a lot of experimentation, there’s no set model for how they’re managed or funded. The bulk of their capital comes from tax revenue or state-backed loans.

 The money is part of Premier Li Keqiang’s effort to bolster the slowing Chinese economy through innovation and reducing its dependence on heavy industry. The country began a campaign to support entrepreneurship in 2014 and has since opened 1,600 high-tech incubators for startups.

Somehow Bloomberg did manage to find one sane commentator on this colossal farce who minced no words. Gary Rieschel, founder of Qiming Venture Partners, suggested that this huge influx of cash raises the possibility of a boom-and-bust cycle like the government-led investment in China’s solar and wind power sectors, among others:

…..“They have a fantasy that if they give everyone money they’ll create entrepreneurs,” he said. But inexperienced or corrupt managers are likely to invest in dozens of regional copycats unable to get big enough to be profitable, he said. “What it will result in is catastrophic losses for the government.”

The point is, an unhinged central bank printing press and a limitless spigot of state funds will eventually create waste, not wealth. Indeed, the stated rationale for this latest burst of madness is the proof of the pudding. They are trying to shove risk capital were private venture investors won’t go——which is to say, in exactly the wrong places.

The cash is meant to “overcome the failure of pure market-oriented allocation of venture capital,” by steering investment into seed and early stages, according to Zero2IPO. The government wants to attract money to riskier startups shunned by private investors who chase quicker and surer returns in late-stage bets, Wu Qing, a researcher for the State Council Development and Research Center, told the China Youth Daily.