Government as Venture Capitalists in AI

Government as Venture Capitalists in AI

Venture capital plays an important role in funding and shaping innovation outcomes, characterized by investors’ deep knowledge of the technology, industry, and institutions, as well as their long-running relationships with the entrepreneurship and innovation community. China, in its pursuit of global leadership in AI innovation and technology, has set up government venture capital funds so that both national and local governments act as venture capitalists. These government-led venture capital funds combine features of private venture capital with traditional government innovation policies. In this paper, we collect comprehensive data on China's government and private venture capital funds. We draw three important contrasts between government and private VC funds: (i) government funds are spatially more dispersed than private funds; (ii) government funds invest in firms with weaker ex-ante performance signals but these firms exhibit growth rates exceeding those of firms in which private funds invest; and (iii) private VC funds follow government VC investments, especially when hometown government funds directly invest on firms with weaker ex-ante performance signals. We interpret these patterns in light of VC funds' traditional role overcoming information frictions and China's unique institutional environment, which includes important frictions on mobility and information.

David Y. Yang is a Professor in the Department of Economics at Harvard University and Director of the Center for History and Economics at Harvard. David is a Faculty Research Fellow at NBER, a Global Scholar at CIFAR, and a fellow at BREAD. David’s research focuses on political economy. In particular, David studies the forces of stability and forces of changes in authoritarian regimes, drawing lessons from historical and contemporary China. David received a B.A. in Statistics and B.S. in Business Administration from University of California at Berkeley, and PhD in Economics from Stanford.

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Lecture Series: AI Governance in China

Artificial intelligence is rapidly transforming societies, economies, and political systems worldwide, and China is emerging as a central actor in shaping the governance of these technologies. This lecture series explores the multiple dimensions of AI governance in China, from state regulation and the role of AI in public administration to societal engagement with AI technologies.

Join us online and in person for six lectures featuring leading scholars, including: Jinghan Zeng (City University of Hong Kong), Hui Zhou and Genia Kostka (Freie Universität Berlin) and Angela Huyue Zhang (USC Gould School of Law), Eddie Yang (Purdue University), David Yang (Harvard University) and Jeffrey Ding (George Washington University).

Hosted by the Berlin Contemporary China Network (BCCN), the China Competence Training Center (CCTC) and SCRIPTS, the 2025/26 winter term lecture series is conceptualized by Prof. Dr. Genia Kostka and Anton Bogs from Freie Universität Berlin.