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Industrial policy in a new era: Government venture capital in the US–China trade war

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  • Chen, Y. Joy
  • Gong, Robin Kaiji
  • Li, Jinlin

Abstract

Government venture capital (VC) is a core component of China’s industrial policy framework. This study documents a novel feature of government VC under geopolitical tensions: During the 2018–2019 US–China trade war, government VC funds sustained their investments in manufacturing industries targeted by the U.S. tariffs, in contrast to an overall withdrawal of private capital. This persistence had important implications for startup financing and innovation. Startups heavily exposed to tariff shocks (1) were more likely to secure follow-on financing from government VC, especially if they had stronger innovation track records and (2) produced more patents if their localities had higher ex ante government VC activity. Collectively, these findings suggest that government VC, as an emerging instrument of industrial policy, helped underpin the resilience of China’s high-tech industries in the face of geopolitical risks.

Suggested Citation

  • Chen, Y. Joy & Gong, Robin Kaiji & Li, Jinlin, 2026. "Industrial policy in a new era: Government venture capital in the US–China trade war," Journal of Development Economics, Elsevier, vol. 178(C).
    • Handle: RePEc:eee:deveco:v:178:y:2026:i:c:s0304387825001506
    DOI: 10.1016/j.jdeveco.2025.103599
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    Keywords

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    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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