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China’s experience in building a venture capital sector: four lessons for policy makers

Capital investments Business investment Startups China

This paper examines the history of China’s venture capital (VC) sector from the late 1980s to the present day and draws lessons on its decades-long experimentation with creating financing channels for early-stage technology business growth. The author highlights four broad takeaways from the myriad of policies that China’s policy makers have employed.

These include:

  1. the importance of labour market policies that encourage reverse migration of highly educated and experienced expatriates;
  2. the observations that weak intellectual property (IP) protection may not necessarily scare potential VC funds away, especially in developing countries;
  3. that government finance, when channelled appropriately and combined with selective deregulation and financial incentives, can play a positive role in helping channel capital toward promising technology firms; 
  4. that open and liquid domestic capital markets are neither sufficient nor necessary for the formation of a vibrant VC sector.
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