Shanghai's Pudong area, home to the city's main Lujiazui financial district, may offer subsidies and launch a government fund of funds to encourage growth in the hedge fund industry, said Shi Haining, director-general of its financial services bureau.

The Pudong district government is considering a 3 billion yuan ($486 million) to 5 billion yuan fund of hedge-funds, Shi told a forum in Shanghai over the weekend. It will be part of a 10 billion yuan government financial industry development fund that Pudong may set up at the end of this year, he added.

Growing private wealth has spurred Chinese demand for alternative investment products, such as hedge funds. The number of Chinese individuals with more than 10 million yuan of investable assets rose to at least 700,000 at the end of 2012, more than double the number four years earlier, a Bain & Co report released in May last year said. Their average investable assets were forecast to grow to 31.8 million yuan by the end of 2013, it said.

Pudong also plans to give new hedge funds one-off subsidies and offer incentives to hedge fund executives and other key personnel, Shi said. The policy could be announced by the end of this month, he added.

Chinese regulators have moved in the past year to recognize private funds, including hedge funds previously shunned in the country as speculators and manipulators. Pudong is vying with other districts in Shanghai, such as Hongkou, to attract hedge funds.

Shi did not elaborate during his speech on how the government fund of hedge-funds will be used. About 300 hedge fund firms already operate in Pudong, with about 100 billion yuan of assets under management among them, he said.

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