How Law, Politics and Transnational Networks Affect Technology Entrepreneurship: Explaining Divergent Venture Capital Investing Strategies in China

Douglas B. Fuller*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


This article identifies three distinct patterns of investment behavior by venture capital firms investing in technology sector start-ups in China. The first pattern is the service-oriented, technology-light investment behavior exhibited by the foreign venture capitalist firms not founded by ethnic Chinese. The second pattern is the technology creation investment pattern exhibited by foreign firms founded by ethnic Chinese and embedded in ethnic Chinese communities. The third pattern consists of local state-funded Chinese venture capital firms that choose either to invest in state-directed projects or opt out of investing in technology start-ups entirely. What explains the differences in behavior between the strictly foreign and the ethnic Chinese-embedded foreign firms are the different legal environments in which these firms honed their skills. The different learned experience gained from operating in different environments explains why the foreign firms avoid investing in technology-generating activities in China whereas the ethnic Chinese firms are willing to do so despite China's notorious weak intellectual property rights regime. The political factors influencing the distribution of finance in China explain the behavior and essential failure of the local state-run venture capital firms. These findings demonstrate that several distinct, separate and non-clashing institutional arrangements are concurrently operating within China and shaping the behavior of venture capital firms there.

Original languageEnglish
JournalAsia Pacific Journal of Management
Issue number3
Pages (from-to)445-459
Number of pages15
Publication statusPublished - 2009
Externally publishedYes


  • China
  • Venture capital
  • Technology
  • Technology development
  • Rule of law
  • Political economy

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