The Chinese government has always seen science and technology as a critical part of its search for economic development and national security. Venture capital in the Chinese context, therefore, has been promoted not as a means to private gain, but as a critical mechanism for linking scientific and technological capabilities and outputs on one hand, with national and regional economic and social development on the other.
No longer, however, do policymakers or analysts ask the naïve question of whether China’s venture capital industry will follow the “Silicon Valley model”, that of some other country or region, or develop into a distinctive “Chinese” model. Although still developing, China’s venture capital industry is clearly an outcome if its particular combination of political, economic and social institutions and the nature of the broader changes it has been undergoing during its transition from central planning to a more market-based business system.
China’s venture capital industry, including the total set of related actors and institutions, has undergone a dramatic transformation over the last two decades. Because of it starting conditions in particular, its legacy of inefficient central planning and socialist ideology the results of this transformation seem particularly striking. The system that has emerged so far is highly complex in terms of variety and number of organizational actors, as well the multiple dimensions on which these actors are linked (Figure 1). This complexity is increased because all of the organizational and institutional elements are themselves changing in response to policy, technological and other developments.
Although still in flux, the system has already generated impressive results in terms of sheer scale (see Table 1). It now includes 86,000 new technology based ventures employing 5.6 million and generating revenues of RMB 1.5 trillion. Supporting them are over 200 venture capital firms, at least 130 publicly listed firms, 465 technology business incubators, and 53 high-tech zones, as well as the central bureaucracies and provincial and municipal governments.
This paper examines the development, structure and key issues facing China’s venture capital industry and its impact on new technology ventures. Although by no means stable in terms of structure or dynamics, we are able to discern certain trends and trajectories. We are also able to understand the nature of the outcomes of this system to date regarding the development of new technology ventures, various forms of venture capital firms and organizational structures supporting them. We relate these features of the system to indicators of its performance, as well as the current and emerging issues affecting its further development.
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