The Chinese government has had the tendency to pour money into institutions that are failing, a key driver behind its inflated GDP numbers and allegedly growing economy.

In fact, Harbin Bank, a medium-sized Chinese bank which previously held private shareholders, has announced that its former shareholders have been replaced with government investors who will provide the lender with state backing.

Now, Harbin Bank will be controlled 48% by two government entities. Chinese authorities have extended support to four small lenders already this year, setting a precedent of supplanting corrupt, private investors such as Xiao Jianhua, who narrowly escaped prosecution in 2017.

The October economic activity data for China that was released last week shows that growth has slowed post September, with industrial production slowing to 4.7% from 5.8%.

This is a warning sign, especially given the escalation of the U.S.-China trade war. A continuing trend in deteriorating manufacturing and industrial numbers is a definite sign that China will continue to intervene in its economy, a notion that has been manifested in China's tech sector as well.

In fact, China has set up a $21 billion state-backed fund to boost its manufacturing industry through investing in tech. This will be funded by the country's finance ministry and several state-owned enterprises, along with a $29 billion chip-focused fund that was instituted just last month.

"The manufacturing fund will probably give priority to listed companies, thus encouraging more private capital to participate, and maximizing its goal to upgrade the manufacturing industry," said Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology.

The new fund will invest in "companies working on areas including new materials, next-generation information technology, and electrical equipment."

One argument is that sponsorship from state-backed funds creates confidence among private investors, who will see the government investment as a sign of future growth and security. However, even though this may encourage domestic investors, it may deter foreign investors, who see the state involvement as restrictive and potentially involving a higher level of regulation.

This directly contradicts China's new industrial policy, that will encourage foreign capital to invest in China and giving foreign firms more access to its markets.