Why desperate local governments fund corporate fantasies

(Edited and refined by Grace Chong, with the assistance of AI translation.)

As cash-strapped companies collide with Chinese local governments desperate for quick economic wins, a darkly humorous phenomenon has emerged: beng laotou (崩老头, “fleecing the old geezers”). Each side holds exactly what the other needs, triggering a transactional game that has captured the public’s imagination.

Beng laotou is a recent Chinese internet slang term that describes the act of coaxing or exploiting someone for money. It originally referred to younger women who offer emotional companionship and flirtation to financially comfortable, older men in exchange for cash. In this transactional dynamic, both sides are seen as willing participants — a mutual arrangement of giving and taking.

A recent PR crisis involving Yu Hao, the founder of China’s Dreame Technology, has pushed the controversy surrounding beng laotou directly into the realm of government-business relations.

Yu Hao and the Dreame Technology controversy

Last month, the popular Chinese financial media outlet Shou Lou Chu (兽楼处) published a viral commentary titled “Tsinghua genius plays the long con”. The piece claimed that Yu has recently resorted to increasingly sensational remarks and performative marketing in a desperate bid to secure industrial funding from local governments.

Specifically, the article alleges that Dreame Technology established over 200 cross-departmental business units and pushed overly ambitious slogans, such as “surpassing 1 trillion RMB by 2028”, solely to artificially inflate its valuation. This strategy directly targeted local officials under intense pressure to meet investment quotas, effectively allowing the company to lock in government funding. Critics have ultimately likened this approach to a calculated financial hustle designed to exploit vulnerable targets for cash.

Although the article was later taken down and Dreame Technology denied the allegations, scrutiny surrounding its partnership model with local governments has persisted. On June 5, Chinese media reported that a district in Jiangsu Province was reviewing local firms’ collaborations with Dreame Technology. This investigation reportedly covers project scopes, investment sizes, the involvement of state-owned and fiscal funds, and current operational statuses.

When investment-driven officials meet capital-seeking firms

The case has put the symbiotic ties between local governments and companies under the spotlight. When investment-pressured officials cross paths with capital-hungry firms, what hidden risks are embedded in this pursuit of mutual gain?

Sun Xiaoqiang, a professor at Yunnan University of Finance and Economics and former deputy director of the Kunming Investment Promotion Board (2012-2021), told Lianhe Zaobao that while the slang beng laotou might be new, the phenomenon of local governments falling for it is not. According to Sun, these deceptive schemes trap officials not just in less developed regions, but also across highly developed cities.

Sun noted that local governments have long faced immense pressure from performance evaluation targets. Although the central government has recently stressed a more balanced approach to governance metrics, and some regions have toned down specific indicators, the underlying pressure persists — local officials are still expected to meet strict targets for economic growth and investment attraction.

Under pressure to attract investment, local governments are easily persuaded by companies. Sun, who serves as an investment advisory consultant for several local governments, said a key challenge is that companies’ narratives are “a mix of truth and falsehood — hard to tell apart”.

He explained that while some firms are simply out to exploit resources — using tactics like fabricating backgrounds, masquerading as state-owned enterprises, or rebranding themselves as high-tech players in booming sectors — others might not be intentionally deceptive. Some merely overestimate their own capabilities. Even so, when rushed local authorities plunge in blindly, the resulting government investments still carry immense risk.

Are local governments not doing proper background checks — are they really so easily fooled? Sun drew an analogy: “Why do so many people fall victim to online scams? Some companies are just highly skilled at packaging themselves as if they are the real deal.”

An almost insatiable hunger for performance

Another challenge for local governments is the shift in investment attraction models. To curb increasingly intense competition among regions, China has tightened regulation of government-led investment promotion since 2024, banning preferential policies such as selective tax breaks, land concessions and subsidies.

As a result, more local governments have turned to “fund-based investment promotion”, using state-backed investment platforms and funds to attract firms through equity stakes. In effect, local governments now operate much like investment banks, while companies vie for access to industrial funds across regions.

But a key issue is that local governments may lack the necessary professional expertise. Sun noted that investment is a highly specialised field, yet government fund managers are often unfamiliar with it, and may fall short in areas such as due diligence, risk pricing and post-investment management.

In April, Chinese state broadcaster CCTV reported a failed case: in an effort to bring the electric vehicle brand Neta Auto to the city, state-backed institutions in Jiangxi’s Yichun invested nearly 2 billion RMB (about US$295 million) to acquire equity. Nanning in Guangxi also committed around 2.4 billion RMB through a fund structure. But these investments ultimately went down the drain — Neta’s parent company, Hozon New Energy Automobile, filed for bankruptcy in June last year.

A People’s Daily commentary wrote: “How is it that a company with no real core competitiveness in the market, racking up losses year after year, can still be treated as a VIP by numerous local governments, with tens of billions in public funds poured in as they compete to prop it up? The answer is harsh: an almost insatiable hunger for performance.”

The ability to sell a dream

An energy technology industry player, who declined to be named and has previously dealt with local governments, said in an interview that in the early stages of a company’s development, whether state capital is brought in is relatively unimportant. However, in high-end or highly specialised industries, later-stage expansion often depends on support from state-backed capital, especially where infrastructure investment is involved.

He said frankly that entrepreneurs ultimately need a certain “ability to sell a dream”. He shared, “Take Elon Musk, for example — he’s made plenty of bold claims. Not all of them have fully materialised, but the business has still been built step by step. Without the ability to sell a vision, it’s hard for a company’s valuation to go up — why would investors back you otherwise?”

Corporate self-promotion is not inherently problematic, but where does it cross the line into beng laotou? Shen thinks that the key lies in how far the business can actually be implemented, and whether the company truly has the technological capabilities, customer base and industry experience to expand into new sectors.

Risks to public assets and governance credibility

The growing attention on the beng laotou phenomenon stems not only from the murky alignment of interests between governments and businesses, but also from the broader risks it may create.

Sun said the most immediate consequence of local governments being beng laotou is the loss of state assets. When projects fail to move forward, land may sit idle for years, triggering wider social problems such as unpaid wages on stalled developments.

Furthermore, should the government be exposed as having been deceived, both its credibility and the business environment would suffer a severe blow.

Reform of local government evaluation systems remains central

At its root, the beng laotou phenomenon reflects structural issues within the Chinese economy. Shen explained that businesses are targeting local government funds because the variety of market investors has rapidly shrunk, leaving state capital heavily dominant. Meanwhile, the dwindling appetite for investment stems from sluggish consumption, which stifles corporate growth and deters investors.

Shen added that this phenomenon also shows that these businesses are incapable of generating returns through normal operations in the short term. “It’s just like gold diggers fleecing older men,” Shen said. “They have resorted to beng laotou because they can’t find a job.”

On 5 June, Chinese authorities issued guidelines to strengthen supervision, prevent risks and promote the high-quality development of private investment funds. It sets out new regulatory requirements for the private investment fund industry, including a clear directive to strictly control the establishment of new government investment funds. This is widely regarded as a new measure to strengthen the management of government investment funds.

Sun also believes that curbing the spread of the beng laotou phenomenon ultimately requires the reform of the local government performance evaluation system — the most fundamental yet difficult problem to resolve.

He noted that, although the authorities have stressed in recent years that GDP should not be the sole focus, economic indicators still carry significant weight in performance evaluations. “To meet the targets, (officials) have no choice,” he said. 

Yet without any assessment metrics, local governments may lose the incentive to act. Designing a reliable evaluation system is therefore a complex challenge.

Sun also proposed that local governments should build more professional investment promotion teams and strengthen risk management processes, including preventing “one-man rule” in decision-making.

He said, “At a more fundamental level, it comes down to balancing an effective government with an efficient market… The government still intervenes heavily in competitive sectors that should really be left to the market to allocate resources — and this is precisely the problem.”

Otherwise, this “willing seller, willing buyer” dynamic is likely to continue. Shen described, “It’s like girls offering emotional support in exchange for material rewards from men. Firms and local governments are in fact exploiting each other, but neither side is truly committed.” 

This article was first published in Lianhe Zaobao as “招商压力遇融资焦虑 追觅风波牵出“崩老头”怪象揭地方发展困局”.

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