China as public venture capitalist: Attainment and policies

Public venture capital programs have become a popular policy tool in many countries to support innovation and technology-based small and medium sized enterprises (TSMEs) thanks to the convergence of technology, economic and financial policies. However, public venture capital programs in China have been hardly studied. This dissertation examines the policy evolution and development of China's public venture capital programs and evaluates program performance by studying a typical case, Innofund. Hypothesis tests show that Innofund has not crowded out private investments but catalyzed both other public and private funding to TSMEs. Innofund has stronger catalytic effect on TSMEs' own capital while local governments have stronger catalytic effect on financial institutions. In both cases, Innofund and local governments together can achieve the strongest catalytic effect on private funding to TSMEs. Innofund has avoided herding problem in its past operation and effectively supports the development of West China Provincial size. Technological development level and population are the key predictors of Innofund awards on provincial basis. The supply of Innofund depends on the demand, which is determined by the general R&D spending, local governments' S&T budget, and population. Innofund has only marginally achieved its goal of developing market mechanism for TSME funding. Innofund is recommended to (i) enhance its catalytic role by stringently enforcing the matching ratio requirement for local governments and fine-tuning the relative proportions of Innofund and local government funding for different TSMEs; (ii) change loan interest subsidies to low-interest soft loans; (iii) increase its use of equity; (iv) use more market and management experts; and (v) have a medium- to long-term plan to migrate from relying on bureaucratic system to relying on market infrastructure.