Harnessing venture capital in China

This article studies the development and distinct features of China’s venture capital (VC) market, now the world’s second largest. I show that the Chinese state has creatively adapted its involvement in VC to harness it for industrial policy—by working with private investors to target startups in key sectors, rendering state activism and vibrant entrepreneurship mutually supportive. This adaptation and China’s embrace of transnational VC have created two varieties of VC with distinct investment patterns. Whereas return-driven VC, much raised overseas, has been active in backing platform companies, policy-guided VC has bet heavily on startups in prioritized sectors. This article challenges the view that vibrant VC and entrepreneurship are products of liberal market economies and the top-down portrayal of China’s political economy. It also adds to the understanding of state–market relations in China by illuminating the process of adaptation and reinvention and by studying China through an explicitly comparative lens.