Coming to Rescue or Going to Waste? Government Venture Capital in the U.S.-China Trade War

63 Pages Posted: 25 Sep 2022 Last revised: 30 Jan 2023

See all articles by Joy Chen

Joy Chen

Cheung Kong Graduate School of Business

Robin Kaiji Gong

HKUST Business School

Jinlin Li

Harvard Kennedy School; Peking University

Date Written: January 29, 2023

Abstract

We study the role of government-funded VCs (GVCs) in the U.S.-China trade war. We document that the trade war contributed to a downturn in China's VC market by substantially reducing the investment rate of independent VC funds. In contrast, GVC investments were unaffected, likely driven by policy initiatives. Innovative startups in high-exposure industries became more likely to receive follow-on financing from GVCs, and those located in prefectures with higher ex-ante GVC activity filed more patents. These results suggest that GVC activity in the local economy leads to a "compete-for-financing" effect that mitigates underinvestment in innovation during market downturns.

Keywords: Venture Capital, Trade War, Innovation, Industrial Policy, China

JEL Classification: E22, F13, F14, G24, G28

Suggested Citation

Chen, Joy and Gong, Kaiji and Li, Jinlin, Coming to Rescue or Going to Waste? Government Venture Capital in the U.S.-China Trade War (January 29, 2023). Available at SSRN: https://ssrn.com/abstract=4218297 or http://dx.doi.org/10.2139/ssrn.4218297

Joy Chen (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Kaiji Gong

HKUST Business School ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Jinlin Li

Harvard Kennedy School ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
123
Abstract Views
469
Rank
362,182
PlumX Metrics