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 the importance of labour market policies that encourage reverse migration of highly educated and experienced expatriates; the observations that weak intellectual property (IP) protection may not necessarily scare potential VC funds away, especially in developing countries; 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; and, lastly, that open and liquid domestic capital markets are neither sufficient nor necessary for the formation of a vibrant VC sector.in this area. It is notable that what distinguishes China’s experience from that of most other countries is not the presence of tech giants, as many countries have advanced, globally competitive technology firms, but the presence of an active and globalized VC sector that is able to help start-ups scale their technologies and other innovations.

This paper offers a discussion of the conditions that have led to the growth of China’s VC market into the second biggest in the world, after that of the United States. The purpose of this paper is neither to offer a novel empirical case study of China’s VC markets nor to offer a definitive explanation of how and why China has developed a large and sophisticated system for financing technological growth and helping small and medium-sized enterprises (SMEs) to scale their business models and technologies. Rather, this paper seeks to underline the lessons that policy makers can learn from China’s experience with financing technological development. China’s experience is puzzling for various reasons, as the institutional and market conditions were not clearly conducive to the growth of private sector technology financing channels. Chief among these conditions are the following: