As local governments rush to back the next tech champion, they risk fueling what China calls “involution,” when intense competition leads to declining prices and diminishing returns. That’s a strong enough motivation for local governments to at least replicate [the approach],” Tse said. With constraints imposed by Beijing on the amount of debt they could take on their own books, local governments used state-owned LGFVs to fund the projects. The document outlined strict registration procedures for local governments when they establish new investment funds. “Startups in strategic industries still need to continue to rely on funding from local governments,” said the Chinese venture capitalist.