Industrial Policy in a New Era: Government Venture Capital in the US.-China Trade War
Source: https://bm.hkust.edu.hk/bizinsight/2026/02/industrial-policy-new-era-government-venture-capital-us-china-trade-war Parent: https://bm.hkust.edu.hk/bizinsight
[ Geo-economics and International Finance ]
Industrial Policy in a New Era: Government Venture Capital in the US.-China Trade War
02 Feb 2026
CHEN, Joy
Assistant Professor
LI, Jinlin
We study the impact of the US-China trade war on the role of government-funded venture capital (VC), as an instrument of industrial policies, in China's VC market. We document a sizeable disparity in the investment responses of government and private VCs to the trade war. While private VCs significantly reduced their investments, government VCs persistently invested in the exposed industries. VC-backed startups, particularly those exhibiting higher innovation capacities, became more likely to receive follow-on capital from government VCs when exposed to trade war shocks. Moreover, exposed startups located in prefectures with higher levels of ex-ante government participation in venture capital also engage in more innovation. Taken together, these results suggest that the trade war strengthened the use of industrial policies to support China’s technology-intensive sectors, and reinforced state dominance over startup innovation.