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Investing with the Government: A Field Experiment in China

Author

Listed:
  • Emanuele Colonnelli
  • Bo Li
  • Ernest Liu

Abstract

We conduct a large-scale, nondeceptive field experiment to elicit preferences for government participation in China's venture capital and private equity market. Our main result is that the average firm dislikes investors with government ties. We show that such dislike is not present with government-owned firms and that this dislike is highest with best-performing firms. Additional results and surveys suggest that political interference in decision-making is the leading reason why government investors are unattractive to private firms. Overall, our findings point to the limits of a model of “state capitalism” that strongly relies on the complementarity between private firms and government capital to drive high-growth entrepreneurship and innovation.

Suggested Citation

  • Emanuele Colonnelli & Bo Li & Ernest Liu, 2024. "Investing with the Government: A Field Experiment in China," Journal of Political Economy, University of Chicago Press, vol. 132(1), pages 248-294.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/726237
    DOI: 10.1086/726237
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    Cited by:

    1. Ying, Limeng & Bao, Mengqi & Yang, Jie, 2025. "Institutional trust as a catalyst: Government procurement and private firms’ risk-taking in China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 2437-2457.
    2. Xu, Maobin & Liu, Yi & Wu, Kai, 2025. "The power of title: Unintended consequences of a place-based innovation policy in China," Economic Modelling, Elsevier, vol. 152(C).
    3. Peng, Kai & Yu, Fang & Kong, Dongmin & Li, Yang & Geng, Ruihang, 2024. "Do government-guided funds "guide" the transregional mobility of capital? Evidence from cross-city equity investments," Finance Research Letters, Elsevier, vol. 66(C).
    4. Jiang, Weijie & Yu, Hui & Chen, Qi, 2024. "Surname distance and interregional investments," Economic Modelling, Elsevier, vol. 140(C).
    5. Fulong Xiao & Zini Liang & Yongbin Lv & Wei Wang, 2024. "The effect of government‐guided funds on target industries in development zones – Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(5), pages 4701-4722, December.
    6. Lian, Lili & Zhang, Jingyi, 2026. "Allocative implications of government investment in private sector," Journal of Development Economics, Elsevier, vol. 179(C).
    7. Ge, Guoqing & Xue, Jian & Zhang, Qian, 2025. "Syndicate partner composition of governmental venture capital firms: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    8. Isabelle Zhang, 2025. "Government Venture Capital and Entrepreneurship: Evidence From China," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 22(4), pages 568-598, December.
    9. Leonelli, Sinja & Muhn, Maximilian & Rauter, Thomas & Sran, Gurpal S., 2026. "How do consumers use ESG disclosure? Evidence from a randomized field experiment with everyday product purchases," Journal of Accounting and Economics, Elsevier, vol. 81(1).
    10. Elliott Ash & Francesco Capozza & Sergio Galletta, 2026. "Demand for Conversational AI," CESifo Working Paper Series 12673, CESifo.
    11. Kensuke Sakamoto & Yuya Shimizu, 2025. "Design-Based and Network Sampling-Based Uncertainties in Network Experiments," Papers 2506.22989, arXiv.org, revised Sep 2025.
    12. Fei Wang & Hao Wang & Qiliang Mao, 2025. "State-owned enterprises fail to drive regional technological diversification: evidence from China," Empirical Economics, Springer, vol. 69(2), pages 915-949, August.
    13. Féliz, Mariano, 2025. "From development to dependency in Latin America. A critical stance on Argentina’s developmentalist experiences," World Development, Elsevier, vol. 189(C).
    14. Warren Bailey & Jianchao Fan & Jing Liu & Yinggang Zhou, 2025. "Investing like conglomerates? When local governments diversify beyond public services," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(3), pages 583-615, July.
    15. Huang, Xinfei & Zhang, Yue & Zong, Zhe, 2025. "Governmental venture capital and investor sentiment: Evidence from Chinese government guidance funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 99(C).
    16. Bi, Ruigang & Kou, Zonglai & Zhou, Min, 2024. "How to guide venture capital to startups? Evidence from China's Science and Technology Innovation Board," Journal of Asian Economics, Elsevier, vol. 95(C).
    17. Luo, Lingli & Yamanoi, Junichi & Ma, Xufei & Lei, Linan, 2026. "Beyond direct impact: Exploring inward FDI’s multifaceted effects on new venture creation," Journal of Business Venturing, Elsevier, vol. 41(2).
    18. 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).
    19. Jinyan Wen & Donghua Tan & Honglue Wang & Yanxiao Gao, 2025. "How Do Alliance Networks Affect Firms’ Capability of Influencing Technological Standardization? Configuration Analysis Based on the TOE Framework," Sustainability, MDPI, vol. 17(21), pages 1-21, October.

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