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TLDR:
- China is focusing on developing its venture capital market to support technology-driven development.
- Local government funding has increased in the venture capital sector, replacing private investment.
In mainland China, recent policy documents and speeches have highlighted the government’s efforts to promote the growth of the venture capital industry through market-oriented means. With a focus on technology-driven development, Beijing is trying to avoid repeating the mistakes of the former Soviet Union by fostering a vibrant market-based venture capital market to finance promising start-ups.
One of China’s most successful investors raised concerns about the shift in the sector from private venture capital to government funding. Local governments have become powerful players in the market, prioritizing investment inflows into their regions over financial returns. Some argue that local-government funding is necessary for growing new productive forces, but others worry about the risks associated with a market dominated by government money.
The growth of government funds coincided with the exit of market money, including US-dollar funds, due to tensions between Beijing and Washington. While government venture capital funds play a role in nurturing China’s technology sector, the risks of relying solely on local government funding for venture capital cannot be ignored. China needs to strike a balance between government and market-based funding to achieve its innovation-driven technological and economic growth goals.
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