Government venture capital funds (GVCs) are a global phenomenon. GVCs are central players in China’s VC market, now the second largest globally. While existing literature often depicts China’s GVCs as a successful public effort to promote entrepreneurship, this paper presents an alternative view. It explores the effect of city-level GVC programs on entrepreneurship, as proxied by the formation of new businesses. Using a hand-collected 20-year dataset covering GVC program adoption, early-stage investments, and new firm formation in 280 prefectural cities and employing difference-in-differences and weighted stacked event study methods, Ms. Isabelle Zhang finds that Chinese GVCs are associated with a decrease in overall new firm formation. Interview-based evidence and a triple-differences analysis by industrial sector suggests that this result is driven by stringent investment restrictions imposed by GVC programs, which absorb private sector capital into GVC funds targeting specific industries, thereby discouraging new firm formation in non-policy-supported sectors. These findings offer a cautionary note to global policymakers regarding the complexities of public finance strategies aimed at boosting entrepreneurship.

About the Speaker:

Isabelle Zhang is a doctoral candidate at the University of Virginia School of Law, where her research focuses on the empirical study of corporate and securities law. Her work examines securities regulation in the United States and China, venture capital and private equity governance, and the institutional foundations of market development. Her scholarship has been published in the Journal of Empirical Legal Studies and the Berkeley Business Law Journal, and has been featured by the European Corporate Governance Institute and the Oxford Business Law Blog.

Before beginning her doctoral studies, Zhang worked at a major U.S. law firm and a private equity fund. She graduated from Peking University Law School with the National Scholarship and from Stanford Law School’s Program in International Legal Studies, where her thesis examined venture capital and private equity exit in stock markets.