How Government Venture Capital Guiding Funds Work in Financing High‐Tech Start‐Ups in China: A ‘Strategic Exchange’ Perspective

• Author: Hua Ni,Jinmin Wang,Shaowei He,Jing Wang
• Published date: 01 November 2013
• DOI: http://doi.org/10.1002/jsc.1948
• Date: 01 November 2013

Strat. Change 22: 417–429 (2013)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.1948 RESEARCH ARTICLE

Copyright © 2013 John Wiley & Sons, Ltd.

Strategic Change: Brie ngs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.1948

How Government Venture Capital Guiding Funds

Work in Financing High-Tech Start-Ups in China:

A ‘Strategic Exchange’ Perspective1

Jinmin Wang

School of Contemporary Chinese Studies, University of Nottingham, UK

Jing Wang

Nottingham Business School, Nottingham Trent University, UK

Hua Ni

Financial Work O ce, Hangzhou Municipal Government, China

Shaowei He

Northampton Business School, University of Northampton, UK

Introduction

China’s recent path to growth and development has proved to be distinctive, and

small and medium enterprises (SMEs) appear to have been a major driving force

in this country’s ‘economic miracle’ (OECD, 2004; Li and Matlay, 2006).  ere

are currently more than 50 million SMEs, accounting for 80% of employment,

60% of gross domestic product (GDP), and 50% of national tax revenue (MOC,

2010). Financing has been identi ed as one of the most crucial factors determining

the survival and growth of SMEs (UNCTAD, 1995, 2001). If  nancial markets

are not working e ciently and fail to provide enough capital for high-growth

start-ups, it has been suggested that government should try to correct any occur-

ring market failures (Lerner, 1999, 2010). Government intervention is based on

the belief that small technology-based  rms in particular are a key source of inno-

vation, job creation, and productivity growth (Mason, 2009). Economists have

also documented the strong connection between technological progress and eco-

nomic growth, both across nations and over time (Nelson and Phelps, 1966;

Romer, 1990; Solow, 1994; Barro and Sala-i-Martin, 2003).

The local government in China

usually plays a dominant role in

venture capital guiding funds due

to the strategic resources it

possesses.

Promoting the venture capital

market by stimulating private

investors’ engagement is a crucial

step to create the foundation of

public/private partnerships from a

local government perspective.

At the operational level of VCGFs,

both public and private

stakeholders should follow the

market-oriented principle by

minimizing the intervention or

control over business decisions of

high-tech start-ups.

Under its speci c institutional context, the public/private partnership approach

needs to be interpreted differently from strategic level to operational level in

China to improve the performance of venture capital guiding funds.

1 JEL classi cation codes: G24, M13, O16.