Chapter 5 China
Each employee needed to “return to the mindset of an entrepreneur,” quipped Alibaba Chief Executive Daniel Zhang when the tech giant announced its plans to split into six different companies in March 2023 (Horwitz 2023).1 The Alibaba split signaled, to many, the return of China Inc. and the end of the tech crackdown, as Jack Ma was able to again set foot in his home country and Chinese regulators offered big tech a way forward. Alibaba and the Jack Ma experience in some ways serve as a microcosm of China’s dynamics, especially with respect to the state’s engagement with companies in the consumer internet sector. After the Alibaba split was announced, the leadership detailed plans for the jewel in the crown—its cloud computing unit—to be spun out in an IPO. Just a few months later, headlines conveyed a retrenching of plans. Due to uncertainties, the Alibaba Group no longer planned to IPO the cloud computing unit (Zhou 2023). In the last weeks of 2023, Jack Ma announced that he was starting a new company (Hangzhou Ma’s Kitchen Food, named after his hometown and focused on prepackaged food) (Wakasugi 2023). There is something to be said for the significance of such a storied founder (Jack Ma) creating a startup after stepping down from the market leader he built. This dynamism runs as a Mark I flavor across the Chinese case.
The China case stands in contrast to the enabling role of the state in boosting startups in open innovation ecosystems for the benefit of incumbents in the Japanese and Korean cases and is also different from the state’s relative avoidance of oligopolies like TSMC in the Taiwanese context. This is because some large companies, like Alibaba in the platform economy, have faced existential threats from other competitors and from the regulatory reach of the state (McKnight et al. 2023). Companies operating in hard tech, strategic industries or critical technologies in China are flush with cash, while some firms in the consumer internet industry faced the brunt of the crackdown (Economist 2024a; Chen 2022a; Kroeber 2020).
In this sense, China offers the opportunity to study a unique hybrid of Mark I and II paradigms, depending on the industry, technology, and timing. For large state-backed firms, like SMIC, startup policy stands to complement or even benefit its capabilities, but in areas like the platform economy, sometimes oligopolistic positions face dismantling by the state and existential challenges by gladiatorial entrepreneurs (Chen 2015; Lee 2018). Even large firms hailed as essential competitors for China in its bid for self-sufficiency in various markets speak of fundamental threats posed by fellow Chinese competitors. For instance, the existential threat that ZTE Corporation posed to Huawei prompted Huawei to file an injunction against ZTE in the European Court of Justice in 2015 (Banasevic and Bobowiec 2023). This competition from fellow Chinese firms comes, of course, in addition to threats from Western firms and restrictions on market access (Fisher 2020a).
China’s startup capitalism accelerated from the early 2000s but has experienced twists and turns vis-à-vis the treatment of big businesses since 2012. The eventual entry into the WTO and the EAFC—even if China was not directly affected by it—were critical junctures for policy makers, catapulting startup promotion. The government has implemented a wide range of policies to make startups a driver for innovation and, relatedly, industrial upgrading and job creation (Brandt and Thun 2016). For instance, the MIIT led a multi-agency plan around China’s advance of its metaverse prowess in which five clusters of startup activity would be boosted (Deng 2023). In critical industries and technologies, such as semiconductors, however, the open innovation variety of startup capitalism is more evident, and large firms are championed (Pearson et al. 2023), aligning more closely with Mark II logics.
China is also a valuable case because it is often considered a late developer, a juggernaut that is understudied in comparative terms (Heberer 2016; Pempel 2021). Though not covered in the core developmental state scholarship, as China has developed, political economy scholars have revealed how the role of the state was crucial in the early stages as China sought to catch up with more advanced competitors (McNally 2012). From the outset, China adopted and adapted many of the policies used by the East Asian developmental states of Japan, Korea, and Taiwan. To start with, the central government strove to be in control of economic policy making, but considering its size compared to other East Asian countries, implementation was devolved to provincial and local governments. Thus, the Chinese government’s largesse for startups—across the 1978 to 2023 period—offers an opportunity to study a hybrid of Mark I and II logics operating differentially over time and across sectors.
Antecedents: China (1978–2000)
Scholarship on China’s political economy emphasizes the role played by the state, often beginning with the foundations established by the Republican state (1927–1937) or the institutions created by the Maoist developmental state (Vu 2010; Bell and Feng 2013). The state not only managed economic activity, it owned the means of production and banned most, if not all, forms of private enterprise (Cai 2008). This changed in December 1978, when Chairman Deng Xiaoping announced domestic economic reforms and an open-door policy under the banner of gaige kaifang (reform and opening). In the ensuing years, China followed an economic growth model underpinned by gradual market-oriented reform premised on liberalization and greater privatization, export-orientation of domestic production, and ever-growing investment (Cao et al. 1999; Yao 2004). Over the years, therefore, China’s politico-economic system has come to be known as “state capitalism” (Naughton and Tsai 2015).2
In terms of the size of the firm central to innovation, the Chinese context has been depicted for the centrality of its state-owned enterprise (SOE)s as well as the essential role played by its growing set of innovative entrepreneurs. From the 1980s, SMEs were expected to develop new “core” technologies (Segal 2003, 29), foster industrial upgrading, and create quality jobs. SOEs were not necessarily expected to drive innovation, instead mainly operating in utility types of sectors that would offer essential infrastructure for the rest of the economy—including small innovative firms (Song 2018). At the same time, the technology boom in Silicon Valley sparked interest in China, leading to questions about whether it could benefit from a similar brand of startup-centric innovation. The Torch Program and the Zhongguancun cluster were both established in 1988 (Ken 2022).3 By the 1990s, with the rise of Electronics Avenue in Beijing and other technologically focused startups active across the country, small firms were acknowledged for their contribution to innovation activities (Ken 2022). Led by policy makers described as “red engineers” (Andreas 2009), both the Deng and Jiang governments passed regulations and established funding initiatives for new entrants and their technical upgrading abilities (Wan 2008; Child 2016).4 Thus, in this antecedent period, startups were already construed as an engine of innovation. Indeed, some of China’s best-known technology companies—and those competing with, or even outperforming in some metrics, American rivals like TikTok vis-à-vis Instagram (Campbell 2022)—were launched in this period, including Huawei (1987), Tencent (1998), Alibaba (1999), and Baidu (2000).
China’s labor markets were more fluid in the antecedent period than those in Japan and Korea were. In line with thinking about new entrants as innovators and their ability to absorb surplus labor, employment in startups was promoted through initiatives such as the Torch Program’s technology business incubator (Breznitz and Murphree 2011). In addition, the government set up different programs to attract both overseas Chinese students and international students interested in setting up a firm in China. For instance, in 1994, the Nanjing Municipal Government teamed up with the central government to launch the Nanjing Overseas Students Entrepreneurship Park, targeting overseas students. At the same time, the hukou social registration system began using the language of entrepreneurs to assign points for prospective residents in major cities. In 1998, the State Council approved the Notice of the Ministry of Public Security on Resolving Several Outstanding Issues in the Current Household Registration Management Work, which saw the first specific reference to entrepreneurial activities—“setting up” an enterprise. The entry of entrepreneurship on the hukou regulations signals efforts to encourage fluid labor markets by linking citizen rights to this form of (self-)employment. This all points to some degree of flexibility in the labor market, even in China’s antecedent period.
In the antecedent period, China’s financial system differed from those in the other cases in its greater openness to foreign sources of financing at an earlier stage and to a mix of credit and equity financing. On the one hand, the central government oversaw credit provision managed by state-owned banks, akin to those in other developmental states (Cheung 2018). At the same time, “back-alley banking” entrepreneurs proved resourceful in finding alternative, private sources of funding (Tsai 2002). While state banks provided preferential credit to SOEs, from the 1980s, there were efforts to avail equity-based financing for growing startups (Lewin et al. 2016). VC, for instance, was legally allowed in 1985,5 and a year later, the government set up the China New Technology Venture Investment Corporation to provide VC funding (Kenney et al. 2002).6 Managed by MoST and funded by MOF, Innofund was set up in conjunction with the Torch Program in 1999 to provide financial assistance to startups through a combination of interest-free loans, grants, and equity (Wang 2013, 133).
The state also expanded stock market access for startups. The Standing Committee passed the Revision of the Company Law in 1999, which allowed high-tech companies to be listed on the Chinese stock markets and set the groundwork for preparing to establish a separate high-tech stock exchange market. The existence of the Shanghai and Shenzhen stock markets and high-tech companies that could go public on those markets meant there were exit venues for high-growth startups. In this period, most tech firms listed in Hong Kong—with the city having rejoined China in 1997—and Shanghai or Shenzhen, plus, in some cases, New York. Thus, while large firms drew on debt financing, the state enabled financing through a mix of equity-based mechanisms (e.g., VC and stock exchanges) and debt (e.g., startup-focused loans).
The government put technological upgrading at the center of its development model. In 1980, the State Council established the Patent Office of the PRC. Set up only one year after the start of the reform and opening period, the office signaled that the Deng government wanted to make innovation part of the development and growth strategy (Simon and Goldman 1989). The Deng administration launched an innovation policy based on a dual strategy: to focus on catch-up development while planting the seeds for China to eventually compete at the frontier stage (Liu et al. 2011, 921). This period is depicted as evolving “from copying” to “fit for purpose” by George Yip and Bruce McKern (2016, 13), as entrepreneurs moved from imitation toward improving their products to address customer needs. The biggest institutional breakthrough came in 1985, when the Communist Party of China (CPC) Central Committee passed the Decision on the Reform of the Science and Technology System. This allowed for further decisions to expand the autonomy of R&D institutes, opening the gates to the establishment of high-tech industries development zones (HIDZ)—which paved the way for the Torch Program’s business incubators—and for the institutes themselves to see members of their research teams spin-off into high-tech startups.
The ultimate motivation for the investment in upgrading technological capacity was clear; “indigenous technological capability would mean that” for the first time in centuries, “China would be actively involved in defining, not just accepting, international technological standards” (Segal 2003, 3). In 1986, the State Science and Technology Commission (SSTC) launched the State High-Tech R&D Program, also known as the 863 Program, to bolster indigenous innovation capacity (Zhi and Pearson 2016).7 To be sure, China’s antecedent period is characterized by the development of catch-up capabilities and incremental innovation prowess on a path toward indigenous innovation at the technological frontier.
The domestic aims of balanced regional development and job creation were central to China’s social purposes in promoting small firms in the antecedent era. Domestic concerns in the form of equitable growth, particularly balanced regional growth across the country, have been central. This decentralization objective was an acknowledgment that the central government could not direct growth across such a geographically extensive and diverse country (Lin and Liu 2000; Cai and Treisman 2006). Local governments were motivated to develop economic activity, such as high-technology clusters of startups, as they could raise fiscal revenue through selling their land-use rights due to the 1988 constitutional amendment that allowed for the transfer of land use rights to private investors (Yip and McKern 2016). Launched in 1987, the Wuhan East Lake Hi-Tech Innovation Center therefore served this purpose, while the 1988 Beijing (Zhongguancun) New Technology Industry Experimental Zone helped bolster high-quality employment and production activities in Beijing (Zhou and Liu 2016). As in the other cases, there were some acknowledgments of external drivers in the form of techno-competitiveness contributing to national security. Technological development, fueled by a combination of SOEs and small firms, could help reduce China’s dependence on foreign technologies and thus advance toward its aim of having a “rich country, strong army” (Segal 2003, 3).8
Thematic Analysis
Firm Size
State-backed firms, such as SMIC and ZTE, compete in critical technologies, semiconductors and telecommunications, respectively. The model for SOE technological prowess has included forming joint ventures with foreign manufacturers (Oh 2013). However, policy has also encouraged startups to develop technology and fight for market share, especially in the platform economy (Deng 2022). The elevation of startups came as SOEs were (relatively) sidelined by the Hu government—in power from 2002 to 2012—in its push to transform China into an innovation powerhouse. Startups were the focus of the Hu government’s policies. This was visible in government procurement incentives, education, funding, and training to promote startups around universities and beyond (Lardy 2014).
The Xi government, since taking power in 2012, has been more mixed in its attention to both startups and large firms. Government policy from the Xi government has more to do with the technological application in which a company is operating and the degree of independence they assert. Certainly, under the Xi administration, the military and, to an extent, state-backed firms have been perceived as important components of the innovation ecosystem (Kania 2019). Startups access incentive packages, often once they have effectively navigated intensely competitive markets, if they were operating in the “right” technology sector (Lockett 2022). The competitive innovation context in China is such that technology firms regularly work “996”—9:00 a.m. to 9:00 p.m. six days a week (Dai and Tao 2019)—or even “007”—twenty-four hours a day, seven days a week.
State challenges to, rather than encouragement for, large incumbents reached a peak around 2020. Collective regulatory pressures constituted crackdown on Chinese tech firms in 2020 and 2021, as regulations served serious challenges to some technology sectors, such as online education, while taming others, such as video games. This crackdown was perhaps most publicly visible via the government’s intervention to block the Ant Financial IPO in November 2020. Billed to be the world’s largest-ever IPO, worth US$37 billion, Jack Ma’s financial arm listing was halted by the Shanghai Stock Exchange just days ahead of when it was scheduled (Zhu et al. 2020). The widely reported reason for the regulatory crackdown was concern about Ant Financial operating as an independent technology firm rather than as a bank working in close collaboration with the Chinese state, as well as the off-the-cuff remarks Jack Ma made about the need for undertaking risk and innovation (Zhong 2020). The dramatic stop to the much-lauded IPO further instigated concerns about investing in the Chinese financial system. However, in June 2022, headlines abounded that approval for an Ant Financial IPO was likely (Chen 2022b), and in spring 2023, Alibaba announced plans to list its dismantled six entities on China’s domestic exchanges—moving away from its US listing.
Didi also serves as a clear example of a big technology firm experiencing a crackdown and then a reprieve in the form of its listing on a foreign exchange. In July 2021, China’s Cybersecurity Review Office announced a probe into data security practices and placed a ban on the ride-sharing app’s ability to add new users (Yu et al. 2021). The crackdown on Didi occurred within days of its IPO on the New York Stock Exchange, with the stated reason being that paperwork filed for the IPO posed data security concerns. Didi, by listing on an American exchange, is said to have posed a national security risk—one that the Xi administration quickly acted on. Just under a year later, the Chinese regulator announced that they were concluding their probe and the Didi app would again be available to new users (Zhai and Lin 2022; Mitchell 2022). But in the intervening period, the message was clear: listing on a US exchange was increasingly discouraged , and instead, companies should should target mainland Chinese and Hong Kong exchanges for IPOs. In addition, there was speculation that Didi and other companies that had listed abroad were to offer the Chinese government a 1 percent equity stake and “a direct role in corporate decision” as compensation for their foreign listing (Zhai and Lin 2022).
The BATs (Baidu, Alibaba and Tencent) and also those that were subject to the crackdown, like Didi, publicly toe the party line. When Xi Jinping’s thirty-one-point action plan was published in summer 2023, tycoons like Pony Ma, the Tencent founder, gushed, releasing a statement that he was “extremely excited and deeply inspired” by the plan (McMorrow and Leahy 2023).
The government’s “techlash” and US-China trade war tensions have meant that contributing to national priorities is essential. Startups are welcome to partake in activities that align with national priorities (e.g., infrastructure-focused blockchain), while there are substantial blocks to activity in off-limits arenas, such as cryptocurrency (Hai and Klingler-Vidra 2022). Startups that were part of China’s arms race in technological competitiveness, especially vis-à-vis the United States, have been awash with resources (Clover et al. 2017). Neil Shen, Sequoia China’s storied manager, publicly advised Chinese entrepreneurs to align with the country’s national priorities in 2021 (McMorrow et al. 2023). Entrepreneurs told journalists that they remain concerned about whether the changes “offer real protection of the entrepreneur class and private ownership” (Yuan 2023). Collectively, this augurs for a persistent need to fit with party plans, even if for publicity purposes, both for startups and incumbents.
Employment
Policies have advanced the fluidity of China’s labor market in the twenty-first century in several ways. Status in the context of the party was boosted when entrepreneurship was elevated as a form of work in 2002 through Three Represents, in which the 2002 Sixteenth Party Congress “officially admitted entrepreneurs into the Party” (Roland 2023, 527). Thanks to a boom in foreign firm production facilities in China following WTO accession, worker mobility was growing, especially among university graduates. According to a survey conducted in 2010, 42 percent of university graduates from class year 2008 had already changed jobs at least once (Ibata-Arens 2019).
Before the GFC, explicit efforts were made to promote job creation by startups. This included the 2006 Tax Incentives for Technology Innovations by Enterprises, which allowed for staff training costs amounting to less than 2.5 percent of salary costs to be deducted before tax. This tax incentive could reduce costs that startups bear when hiring and expanding their workforce. Building on this, in early 2008, eleven government agencies collectively issued the “Guiding Opinions on Promoting Employment through Entrepreneurship” (State Council of the PRC 2008). Through this initiative, and as the GFC advanced, high-quality job creation became one of the key aims of startup promotion. In particular, the government was seeking to drive entrepreneurship among university graduates who hitherto would have preferred to join the best-known SOEs or any number of foreign firms operating in China.
In addition, the Hu government was widening the entrepreneurial pool by introducing policies designed to attract highly skilled overseas Chinese back to the mainland. Returnees could launch their own firms or join existing startups, reflecting a labor market embracing fluid job movement. As a notable example, the Ministry of Human Resources and Social Security launched the Chinese Overseas Students’ Return and Entrepreneurship Support Program in 2009. The program offered returnees RMB200,000 (approximately US$30,000) if they had “outstanding” entrepreneurship projects and up to RMB500,000 (just more than US$75,000) for “key” projects (Central People’s Government of the PRC 2009). In short, policy increasingly aimed to widen the pool of would-be entrepreneurs who otherwise might have decided to try their luck in their country of study or with well-paid jobs with large firms.
The CPC Central Committee and the State Council teamed up to deliver a plan to attract highly skilled overseas Chinese into the country’s entrepreneurial pool. This reinforced the point that this approach came from the top echelons of power. In 2010, the National Medium- to Long-Term Talent Development Plan Outline (2010–2020) was established to incentivize the return of overseas talent. These entrepreneurs would then receive incentive packages to launch their own startups or join existing ones (Central People’s Government of the PRC 2010). Following this, the “Opinion on Supporting Overseas Students to Return to China and Start Businesses” was issued in 2011 (Central People’s Government of the PRC 2011) to help returnees navigate funding, government programs, and other opportunities that overseas students might not necessarily be aware of when starting up in China.
Entrepreneurship—rather than lifetime employment—continued to be a priority when Xi came to power in 2012, with “mass entrepreneurship” coming to the fore. In 2015, the State Council issued its “Opinion on Furthering the Work on Employment and Entrepreneurship under New Conditions” (State Council of the PRC 2015b). The document specifies that entrepreneurship should help improve employment opportunities and talent development. The State Council also issued its “Opinion on Several Policies and Measures to Vigorously Advance the Mass Entrepreneurship and Innovation Initiative” (State Council of the PRC 2015a). This document sought to encourage mass entrepreneurship across the country, beyond the high-performing clusters in Shenzhen and Zhongguan. This aim for widespread entrepreneurship was amplified in 2018, as the State Council published the “Opinions on Promoting the High-Quality Development and the Establishment of an Upgraded Version of ‘Mass Innovation and Entrepreneurship’” (State Council of the PRC 2018). While these efforts point to more fluid labor markets in the sense that entrepreneurship—not employment with established firms—was promoted, it was not necessarily focused on startup activity. In The Labor of Reinvention, Lin Zhang (2023) explains that as digital entrepreneurship has integrated with even low-tech rural entrepreneurs—through platforms such as Taobao—new firms encouraged by China’s entrepreneurship policy are increasingly becoming part of the digital economy.
The “13th Five-Year Plan for the Development of National S&T Enterprise Incubators” did move explicitly in the direction of startup activity. Officially released by MoST in 2017, the plan set a target for startup incubators to create over three million jobs and employ at least half a million university graduates in the 2016–2020 period (MoST 2017). In 2018, Premier Li Keqiang stressed that mass entrepreneurship and innovation ought to help stabilize employment and drive economic growth (Xinhua 2018). Li reiterated this in 2018 (State Council of the PRC 2019). Earlier, in 2016, MIIT Minister Miao Wei had boasted that a national development fund set up one year before had already served 120,000 startups, leading to 4.2 million jobs being created (State Council Information Office of the PRC 2016a). In other words, the government was directly linking its startup policies to a quantifiable number of jobs more so than the creation of disruptive new entrants. The 2019 Mass Entrepreneurship and Innovation Week, where Premier Li gave his speech, was held to raise awareness of these policies across wider society (State Council of the PRC 2019).9 Then, amid a slowdown in graduate job creation in 2021, the government introduced further preferential tax treatment and incentives for graduates launching their own startups (Huld 2023).
In addition to the significant scope and depth of its policies aimed at incentivizing fluidity through the promotion of entrepreneurship, the Chinese state has also enabled labor market flexibility by adapting its treatment of bankruptcy. Mark I contexts prize business dynamism, which means that firms need to be able to form and cease to exist. In this way, bankruptcy regulations shape the extent to which labor, and numerous other resources, can be reallocated. Enterprise bankruptcy was first enabled in China in 2007 for both private enterprises and SOEs (Falke 2007). This Hu government regulatory change encourages more flexibility, as firms have finally been able to wipe out debt and move on to new activities when they fail. However, in the Chinese context, personal bankruptcy has remained largely unavailable at the national level. In fact, Shenzhen was the only place in China “where local residents can file for personal bankruptcy, as a pilot scheme was launched there in March 2021” (Zuo and Huifeng 2023). Collectively, bankruptcy regulations have improved in China’s startup capitalism era, which augurs for more fluid labor markets. However, there are still limitations that mean that China’s employment context does not converge on the Mark I ideal type.
Finance
In its antecedent period, the Chinese government had launched a wide range of debt and equity funding initiatives to help fill the entrepreneurial funding gap. In the post-WTO accession period, the government significantly expanded entrepreneurial finance by following a dual strategy: direct (credit) funding by the state and development of a Silicon Valley–style (equity) financing system (Walter and Howie 2012; Pettis 2013). This included the Jiang government, at the end of its time in office, approving the “Provisions Concerning the Establishment of Foreign-Funded Venture Capital Enterprises” in 2001, which made foreign equity funding more available (State Council of the PRC 2016b).10
The government’s direct startup funding, in both credit and equity forms, was substantially increased in the early twenty-first century.11 For instance, in 2004, the government launched the Special Fund for SME Development. The fund would go on to provide RMB950 million by the end of 2007 to aid SMEs, especially innovative activities by micro and small firms (MoST 2004). In 2006, the commission issued the “Guidance Opinions Concerning Commercial Banks’ Improving and Strengthening Financial Services for High-Tech Enterprises.” As the name indicates, this initiative further targeted loans to high-tech firms specifically, so debt instruments remained part of the policy mix for financing startup-centric innovation.
Grants, subsidies, and incubator provision proliferated in the early 2000s. Innofund—China’s version of the US SBIR program—continued to grow its subsidy disbursements throughout the early 2000s. In 2004, the Roadmap Scheme for the Growth of Tech-Based SMEs was launched. Its objective was to create a favorable environment for the development of tech-based startups at various stages, bringing together the efforts of different agencies such as the Shenzhen Stock Exchange (SZSE), the China Development Bank, the National Business Incubator Association, and the National VC Association. The number of firms that applied and received funding from Innofund roughly doubled between 2001 and 2008 (Li et al. 2020, 3).12 In 2006, MoST launched an incubator capacity-building project as part of the “11th Five-Year Plan on Chinese Tech-Based Enterprise Incubators.” The Silicon Valley–styled project included an annual budget of RMB20 million to create a national incubation information service platform, with local governments encouraged to contribute RMB100 million. Finally, the startup incubator system was to be boosted with a RMB200 million fund (MoST 2006a).
Access to equity funding was boosted via multiple channels throughout Hu’s time in power. Government money was made available for equity VC investments, as the Government-Guided Investment Funds were established in 2008. The funds were a new form of a state-backed VC fund that had the objective of investing in startups alongside, and to contribute to, industrial upgrading and public infrastructure (Pan et al. 2021). Third, regulatory changes implemented from 1999 expanded the ability of domestic Chinese VCs to operate (Liu 2015).13 Equity advances continued, as, in 2009, the NDRC and MOF established the Emerging Industries Venture Capital Program, which enabled the establishment of VCs for emerging high-tech industries. Funds had to manage at least RMB250 million, with the central government providing no more than 20 percent of total assets under management, local governments matching that share, and private funding exceeding 60 percent. As Vice Minister Zhu Zhixin stated, the Chinese government believed that the VC and private equity industry could contribute to economic development and industrial upgrading beyond what it had done in the past.14 Collectively, regulatory changes and growing activity in the Chinese tech startup landscape meant that there was a significant increase in VC funds comprised of “ground beetles” and “sea turtles,” foreign VCs, and government money (Mallaby 2022).
The balance further tipped in the direction of equity financing, as stock market access for high-growth startups was expanded. In 2004, the China Securities Regulatory Commission (CSRC) approved the SME Board (SMEB) plan to launch a stock market targeting high-tech startups. This would provide an essential exit venue for startups, especially those that had raised VC funding and needed to produce a sizable return for their investors. The SZSE also established a plan to launch ChiNext, a technology startup-friendly stock market. Plans for ChiNext had originally been mooted in 1999, and it eventually launched in October 2009 (SZSE 2020).15 Together, these plans provided more robust exit options for entrepreneurs and, as a result, a more vibrant equity financing environment.
Incumbent firms—including the BATs, which had themselves been startups in the 1980s and 1990s—also began to make equity investments as they launched their own corporate VCs in the early 2000s (Economist 2018b). Tencent prioritized investments in seed-stage companies, whereas Alibaba and Baidu concentrated more on early-stage (e.g., A and B round) financing (Huang and Tian 2020). Investment from the corporate VC arms of the BATs provided a seal of approval to their portfolio companies, and they offered guidance and mentoring.
The Xi government continued the hybrid debt and equity financing strategy. On the state provision of debt front, the government overhauled the STI funding system in 2014 in a bid to provide structure to the hundred-plus preexisting and overlapping funding programs.16 STI funding was reorganized into five pillars: three programs issuing tenders and two funds. The three programs were the National Natural Science Fund, focusing on basic and applied research; the Major S&T Projects (Megaprojects), focusing on major key products, technology, and engineering; and the National Key R&D Programs, focusing on social welfare and people’s livelihood R&D. One of the two funds established—the Technology Innovation Guidance Fund(s)—focused on encouraging the growth and activities of innovative startups exclusively (State Council of the PRC 2014).17 On the equity side, there have been marked increases in VC funding mechanisms. Starting from 2017, the RMB200 billion Venture Capital Guiding Fund for Emerging Industries operated through VC funds as well as fund-of-fund vehicles (China Innovation Funding 2019). As for the National Fund for Technology Transfer and Commercialization, it facilitated the establishment of VC subfunds to enable the transfer and commercialization of new technologies (China Innovation Funding 2020a). Government guidance meant that VCs increasingly prioritized sectors in line with the national (security) interest, including software, IT services, and pharmaceuticals (Huang and Tian 2020).
Like its predecessor, the Xi government also saw domestic stock markets as a preferential exit strategy for startups. As the trade war with the United States intensified, the government eased the rules for startups to be listed in ChiNext by removing the requirement for CSRC preapproval, allowing loss-making companies to be listed and eliminating price limits during the first five days of listing (Liu and Galbraith 2020).18 In June 2019, the Xi government also launched the Shanghai Stock Exchange Science and Technology Innovation Board (commonly referred to as the Shanghai Stock Exchange STAR market) (Cheng 2019). In a bid to be “China’s NASDAQ,” the STAR market adopted a registration-based IPO process consistent with the US process (Hawksford 2019). This new index was designed to focus on firms in the high-tech and strategic emerging sectors, such as IT, advanced equipment, new materials, new energy, energy-saving and environmental protection, and biomedicine (STAR 2020). To make listing easier, from the outset, startups listing on the STAR market did not need government preapproval, could be loss making, and could issue dual class shares so that entrepreneurs could retain control over operations (Lockett 2019). In a bid to further bolster domestic stock market access for startups, in December 2021, the Beijing Stock Exchange was launched as another venue for high-growth startups, complementing the growing set of options for domestic listings (Hsu 2021). This stock exchange specifically targeted innovation-driven startups, which could ultimately scale-up and then list on other domestic stock exchanges.
The Xi government has stepped up measures to keep capital flowing to Chinese startups, given a secular slowdown in global tech and rising US-China tensions around cross-border tech investments. China’s VC market was jolted by news in summer 2023 that Sequoia China would be sawed off from its global operation, yielding to pressure that the US government had been applying to VCs investing in China (O’Keeffe et al. 2023). Sequoia China was a clear target, given the size of its fund; it had raised US$8.5 billion for its China fund, and its partner, Neil Shen, had led investments into some of the country’s biggest success stories, such as ByteDance, since it was launched in 2005 (McMorrow et al. 2023). Then the Biden administration went further in August 2023, enacting an executive order explicitly banning US venture capital investments in Chinese startups in critical technology arenas, such as artificial intelligence, semiconductors, and quantum computing (Swanson 2023). While American VCs had been active investors in Chinese startups, given political tensions and explicit pressure on larger firms, reports show that Silicon Valley investments had already been declining since their 2018 peak (van Romburgh and Teare 2023). Given this context, the Xi administration has been mobilizing domestic capital for China’s startups. In 2023, the government extended existing tax incentives for VCs and angel investors until 2027 (Xinhua 2023). However, as foreign and private sources of capital have decreased, Chinese state funding as a share of startup funding has grown.
In summary, since 2001, China’s financial system has increasingly pursued the expansion of startup-friendly equity markets, ranging from VC funding to stock markets. While this bodes for an outward movement toward Mark I variety features, it is worth noting that the government has also continued its provision of credit to enable firms’ innovation pursuits. As a result, the Chinese financing for innovation is closer to the Mark I end of the spectrum but remains a mix of equity and debt. While the government seems agnostic to the use of debt or equity, with time, there is an increasingly clear preference for the direction of financing: toward critical technologies.
Innovation
China has moved toward radical innovation and away from the catch-up capacity building that characterized its antecedent period. Even as the country was attracting a larger number of foreign firms, along with their technology transfers, the central government was focusing on creating the conditions for indigenous capacity to move from catch-up to frontier innovation. This was epitomized by the National Science and Technology Conference of 2006, where the Central Committee of the CPC and the State Council issued a Medium- and Long-Term Plan for the Development of Science and Technology. The plan indicated that the government wanted to turn China into an “innovation-oriented country” by 2020, with S&T contributing at least 60 percent of economic growth by that year (Liu et al. 2011, 920).
Part of the move toward radical innovation has involved attempts to simultaneously encourage both “go global” and indigenous innovation strategies. In 2006, the MoST and the Ministry of Commerce jointly issued “Several Opinions on Promoting Going Global of Technology Companies” (China Policy 2017). In this vein, Chinese accelerators in Silicon Valley, such as ZGC Innovation Center, which is backed by Zhongguancun, Beijing’s answer to Silicon Valley, has been working to attract Chinese founders back (Qing and Rodriguez 2018). The idea is that Chinese founders working in Silicon Valley could bring their ideas and activities at the technological frontier to Beijing. The Thousand Talents Plan, launched in 2008, encouraged those who had been studying abroad for several years (the sea turtles, or hǎiguī) to return home. They received generous funding to set up their own research facilities, one-off payments, and other benefits (Jia 2018). Once based in a Chinese university or research center, these talents could also launch their own startup, or their research could be applied to others’ innovative firms. On top of that, in 2001, the Ministry of Personnel issued the “Measures for Administrating Overseas Students Entrepreneurship Parks”—policy guidelines for local governments thinking about setting up facilities for overseas students to remain (Ministry of Human Resources and Social Security 2001). In 2009, the MoST released measures to guide technology companies in going global, encouraging them to carry out collaborative research and establish overseas R&D centers (Wang 2017).
The Chinese state has increasingly emphasized the protection of IP rights. China had been accused of disrespecting IP rights, with the country’s firms moving the value-added chain by allegedly stealing IP from foreign firms (Fuller 2016, 102). Regardless of the merits of these accusations, Chinese bureaucrats determined that domestic firms would not be investing significantly in R&D-centric innovation if there was a chance of IP theft. Therefore, the government has developed more comprehensive IP protection frameworks. In 2001, an amendment to the Trademark Law of the People’s Republic of China, a comprehensive review of all aspects related to trademark certification and protection, was introduced. At the same time, the central government also passed an amendment to the Copyright Law of the People’s Republic of China. The amendment improved the level of copyright protection with reference to international treaties (Standing Committee of the National People’s Congress 2001). Certainly, these amendments were linked to WTO membership, but the government also saw their benefit to stimulate indigenous innovation. It is worth noting that this advance in IP protection has not been foolproof; Kai-fu Lee (2018) notes that Chinese tech entrepreneurs engage in gladiatorial battles precisely because of the poor enforcement of IP protection.
A key reason for the government’s drive to get returnees to launch technology startups is that they tend to have their headquarters and R&D facilities in China, unlike foreign firms or even the Chinese diaspora, whose firms tend to have their headquarters and innovation facilities overseas and assembly plants in China (Fuller 2016, 39–40). This explains why the Chinese government launched the Chinese Overseas Students’ Return and Entrepreneurship Support Program in 2009 and issued the “Opinion on Supporting Overseas Students to Return to China and Start Businesses” in 2011 (Central People’s Government of the PRC 2011). These policies were aimed at having young Chinese launch their startups at home rather than overseas, which would make it more likely that not only the headquarters but also R&D would remain there. In 2011, the Thousand Talents Plan was opened to foreigners working in S&T (China Innovation Funding 2020b). Going beyond what was on offer for Chinese talent, foreigners moving to China under the plan would receive additional benefits on top of a relocation bonus and research funding. The plan emphasized a preference for long-term relocation and set up a path for incentivizing R&D and innovation at the technological frontier in China.
For the Xi government, capabilities around critical technologies have been important, whether advanced by startups or large firms. As part of its emphasis on investing in capabilities in particular technologies, the Xi government has repeatedly identified “strategic emerging industries,” including “electric vehicle manufacturers, biotechnology, renewable energy, artificial intelligence, semiconductors and other high-end equipment manufacturing” (Lockett 2022). The Little Giants program by MIIT, announced in 2018, was designed to foster innovation in high-tech sectors such as semiconductors, machinery, pharmaceuticals, or biotech—as identified in the Made in China (MIC) 2025 initiative. Little Giants program participants received preferential government investment, cheap loans, tax breaks, and help with recruiting talent to enable them to scale-up (McMorrow et al. 2023). Successful firms could then graduate to “Manufacturing Champions,” receiving even stronger state backing as they achieve scale (MIIT 2022).
Chinese innovation policies have delivered on these aims of competing at the world’s innovation frontier. The country has achieved world-class high-tech capabilities in sectors such as AI or 5G (see Allison and Schmidt 2022), but debate persists about the prowess of Chinese producers, especially SMIC, in the all-important semiconductor industry. The BATs had achieved remarkable positions in segments of the global technology sector, including Alibaba becoming “the world’s largest business-to-business Internet portal” and Tencent achieving global success with the WeChat app (Yip and McKern 2016, 11). Taking the case of AI, many were startups launched from 2014 onward (Crunchbase 2020), and were already operating overseas only a few years after being set up (Ruehl 2020). In the semiconductor industry, repeatedly hailed as crucial to national security and specified as such in MIC 2025 as well as in the fourteenth five-year plan, which called for “technological independence” (Fuller 2019), assessments are more sanguine. HiSilicon, the semiconductor subsidiary of Huawei, and many of the other semiconductor firms are making marking advances in fabless chip design and foundry capacity (Klingler-Vidra and Hai 2024). However, China continues to have less than 1 percent of the global market in the end-product category, according to HIS iSuppli (Thomas 2021).
In contrast to the ongoing debate about whether Chinese capabilities are already at the technological frontier (especially in semiconductors), there can be no qualms about whether the ambition of China’s startup capitalism is to deliver incremental or radical innovation. It has unabashedly moved outward, toward radical innovation, and thus closer to Mark I aims.
Social Purpose
China’s post-WTO accession period coincided with a clearer strategy to develop Silicon Valley–style entrepreneurial ecosystems. Such startups were, by this period, increasingly featured in China’s innovation policy (Fannin 2008). Startups and entrepreneurs received the greatest sociopolitical recognition possible when, in 2002, they were granted the right to join the CPC (Wilson 2007, 239). Membership in the CPC was implicit recognition that entrepreneurs were an essential component of the Chinese state. At a more material level, successive administrations increased financial assistance for startups.
China’s startup policy continued to fulfill the two social purposes established at the outset of the reform and opening period: diversification away from SOEs and balanced regional growth. To begin with, private-sector-led technological catch-up supported the overarching goal of reducing dependency on SOEs in a gradualist way, accommodating differences among party leadership and across key institutions (Bell and Feng 2013).19 The 2001 “Five-Year S&T and High-Tech Industries” plans made this clear and were followed by a set of programs and regulations to ensure that entrepreneurs had the best conditions to innovate (Standing Committee of the National People’s Congress 2002b): the 2003 “Opinions on Further Improving the Operation of High-Tech Enterprise Incubators,” issued to set up a special fund to launch and grow startup incubators (MoST 2003), and the 2005 “Measures for Accrediting and Administering Tech-Based Enterprise Incubators,” issued to set up the guidelines for incubators (MoST 2006c). Through these policy initiatives, the Chinese government was diversifying the economy away from its SOE reliance (Wang et al. 2020).
The government’s second domestic social purpose has been to decentralize the Chinese economy and achieve balanced regional development and economic growth. By the early 2000s, the government was making it clear that HIDZs were to be essential vehicles for creating clusters of innovation, jobs, and tax revenues at the local level (Huang 2008; Su et al. 2018). To promote decentralization, the Hu government released three key measures. First, the “Opinions on Further Improving the Operation of High-Tech Enterprise Incubators” established that local government should set up special funds to support incubators, on top of the funding to be provided by the central government (MoST 2003). Through this cluster-centric approach, the central government was indicating that local governments would prioritize largesse for startups. Second, the “Measures for Accrediting and Administering Tech-Based Enterprise Incubators” established certain quantifiable procedures for the accreditation of national HIDZ. To be accredited, a HIDZ needed to constitute over ten thousand square meters in size, over eighty incubated firms, over one thousand jobs, or ownership of over RMB3 million in seed or incubation funds (MoST 2006c). Through these metrics, the central government was laying out an objective benchmark for local governments to meet. Third, the “11th Five-Year Plan on University Technology Parks” set the goal of reaching eighty of these parks and incubating fifteen thousand high-tech firms as a way of better integrating entrepreneurial activity and university education and experience (MoST 2006b).
A third domestically oriented social purpose has advanced: startups as mechanisms for creating good-quality, well-paying jobs. Startups could attract younger workers, including those coming from other provinces or from overseas, thus expanding the tax base available to local governments.20 Job opportunities for university graduates were becoming scarcer, since Chinese exports decreased in the aftermath of the GFC, and capital-starved foreign firms had to reassess their presence in China. As a result, the Hu government saw startups as a tool to promote high-quality employment. The government launched an unprecedented number of policies to link startups to high-quality jobs—especially for graduates and returnees. Prior to the GFC, the Hu government had already shown its concern with the number of dislocated workers that rapid reform was creating. The Hu government was also aware of rapidly growing inequality within and between the country’s provinces—especially between the most prosperous cities and the still-backward (western) countryside (Cheung 2018). Startups, they contended, could help to address this issue.
Similar to how social inclusion became an aim in the Japanese, Korean, and Taiwanese cases, the Chinese government has increasingly sought to harness startups as a means of promoting inclusive economic growth. However, it has done so in a different tack; rather than focusing on diversifying the demographics included in the production of startups (e.g., increasing the share of female entrepreneurs), the Chinese approach has concentrated on inclusion in a regional, and rural, understanding. In particular, the Hu government targeted the geographic expansion of sellers engaging e-commerce platforms. Alibaba, in collaboration with various levels of the Chinese government, fueled the advance of Taobao Villages, which are rural hubs underpinned by Alibaba to sell foodstuff and handicrafts across the country (Peng et al. 2019). In partnership with Taobao, the government contributed to the development of logistics infrastructure, digital literacy, and, as a result, rural development (Li 2017). A village is a Taobao Village when it constitutes “a cluster of rural electronic retailers where at least 10 percent of village households engage in e-commerce and total annual e-commerce transaction volume in the village is at least 10 million Chinese yuan” (Tan et al. 2016, 2). The Taobao Villages served to foster a new set of rural “netrepreneurs” (Lowery et al. 1998). Even though Alibaba was a private company, the state was collaborating in a bid to fulfill the social purpose of regionally oriented social inclusion.
Finally, the external driver of techno-security has come to the fore, especially since Xi came to power in 2012. In 2015, the Xi government unveiled MIC 2025 as the national strategy to make China an innovation and high-tech powerhouse within a decade (Chen 2023). Analysts note that MIC 2025 is representative of a “more nationalistic” environment in which technological independence is a matter of national security (Yip and McKern 2016, 31). S&T and entrepreneurship were listed among the core areas for the government to support. As State Council of China President Lu Yongxiang had stressed shortly before MIC 2025 was announced, entrepreneurs and scientists were the two pivotal groups leading China’s innovation drive (China Daily 2014). In this vein, national and provincial governments continue to provide assistance to startups to pursue innovation at the world frontier, especially technologies considered central to national security, such as blockchain, robotics, and semiconductors (Fuller 2019).
Though the state allowed an open environment for platform economy firms like Alibaba and Tencent to grow, as they matured and came to serve as an essential infrastructure (Plantin and de Seta 2019), they began holding significant stores of data on Chinese citizens and enabling massive volumes of transactions. With the expanse of the digital platforms, the provision of the service and the holding of this granular data on the numerous activities and whereabouts of citizens came to inform national security and, as such, part of the state’s social purpose (see Zheng and Huang 2018; van Dijck 2021).
As part of its efforts to compete in emerging and critical technologies, the Xi government implements policies to encourage innovative startups. The urgency of self-sufficiency in 5G and semiconductors spiked following US bans (Fisher 2020b), with Huawei’s ability to compete dependent on China’s domestic production capabilities. When Huawei launched its Mate 60 Pro with 5G capabilities in late summer 2023, headlines abounded hailing it a victory for China’s self-sufficiency in chip production (Pan et al. 2023). Yet, it is unclear whether the phone’s semiconductor was made by Huawei or SMIC. What seems sure is that it is likely to instigate even tighter US restrictions on Huawei in a bid to slow down China’s advance toward the technological frontier in this critical technology.
Continuity and Change in China
China’s startup capitalism comprises continuity and change in how it combines aspects of both Mark I and II modes. Figure 5.1 summarizes the evolution of firm size, finance, employment, innovation, and social purpose in China, which shows change in the direction of—though far from full alignment with—Mark I in each domain. Similar to that of Taiwan but different from those of Japan and Korea, the Chinese case is depicted as the relative balance of social purposes moving increasingly toward the external priority of national security.
Figure 5.1 reveals that, relative to the other country cases, China has experienced the most significant change. It has seen a remarkable move toward the technological frontier, to one of the world’s largest VC markets and a labor market that celebrates entrepreneurship.
In terms of the size of firm central to innovation, China’s antecedent position on figure 5.1 is designated with a score of 2, reflecting this balance of SOE primacy coupled with some startup involvement. SOEs were essential producers, though already by the 1980s, they served as a platform for the growth of Silicon Valley–style startups. This score places China’s antecedent position further away from the oligopolistic ideal that Japan and Korea were closest to, though it is not as startup-centric as Taiwan’s antecedent era. There has been an overall rise in the focus on startups as engines of innovation in China.
FIGURE 5.1.Analyzing China’s institutional evolution: antecedents to startup capitalism
However, there is marked variation across industries, which is why the score only increases to 2.5—smack in the middle of the oligopolistic and startup-led modes. State support for critical technologies, such as semiconductors, has maintained a focus on large firms. For instance, the state has invested significantly in SMIC, its state-backed semiconductor champion, and provides financial assistance to numerous startups operating in related, but not competing, areas within the semiconductor industry. At the same time, the tech crackdown speaks to the state’s propensity to engage antagonistically with large firms. Platform giants like Alibaba have seen the Chinese state block the IPO of Ant Financial as well as an order to repatriate the stock listing to Chinese equities markets, splitting it into six distinct entities. These Xi-era moves to break up large firms epitomize, in some ways, the state’s orientation toward challenging, rather than reifying, oligopolistic market power. Collectively, we depict China’s path as one in which large firms were—just slightly—more central in the antecedent period. Interestingly, even large firms that may otherwise be considered national champions in their respective technology sectors (e.g., Huawei in telecoms infrastructure) have been described as continuing to face existential threats in the form of other large Chinese firms (e.g., ZTE). This speaks to the aura in which Chinese companies operate—one in which oligopolistic competition and existential threats are both possible.
China’s labor market was—relative to the other cases—fluid in the antecedents period, in the sense that startup employment has long been encouraged. This has only grown. Notably, startups as creators of high-quality jobs became an explicit goal for the government following the 2008 GFC. The importance of startups as employer, innovators, and agents of regional economic growth was underscored by the Hu government issuing the “Guiding Opinions on Promoting Employment through Entrepreneurship” in 2008. Startups continue to be a source of job creation, with the mass entrepreneurship scheme, among others, aimed at boosting the regional distribution of activities. There are still restrictions related to closing a business, though, which dampens the fluidity of the labor market. Thus, while China’s labor market is characterized as being in the middle of fluid and lifetime employment (at a score of 2.5) in the antecedent period, the significant efforts to encourage entrepreneurship across society and to improve regulations around starting and closing businesses underpin the modest shift outward to a score of 3 for the startup capitalism era.
China’s provision of financing for entrepreneurs and startups began with a mixed debt/equity starting point. Again in the middle at 2.5, China’s antecedent period purposefully availed both credit and equity financing for innovation, especially for entrepreneurs. For instance, in 1985, the CPC Central Committee Decision on the Reform of the Science and Technology System created the legal framework for VCs to be launched. In 1986, the China Venturetech Investment Corporation became the first VC firm in China. From the onset of the startup capitalism era in 2001, several government mechanisms for equity financing, specifically VC funding and startups’ access to public equity markets, ensued. This includes the “Provisions Concerning the Establishment of Foreign-Funded Venture Capital Enterprises” of 2001, which led to a sharp growth in the number of VCs backed by foreign investors. Stock market access was boosted; in 2009, Shenzhen’s ChiNext became China’s first answer to Nasdaq, and in 2019, Shanghai’s STAR market joined it. Over the course of the Xi administration, access to foreign capital, including stock markets and VCs, has retrenched, and in its place, there is an emphasis on listing on these domestic exchanges and relying on public coffers to finance growth.
China’s innovation trajectory is characterized by its move toward the technological frontier. China’s antecedent period focused on catch-up capabilities, and thus the score on figure 5.1 for that era is 1, placing it closest to the Mark II end. Throughout the 1980s and 1990s, China was pursuing high growth and did so by entering, and then upgrading, within global value chains. This model continued in the years following WTO accession. There was a fear that Chinese technological innovation would become a paper tiger, with innovation being driven by foreign firms and their Chinese counterparts acting as mere suppliers or bystanders. Thus, the Hu and Xi governments doubled down on putting Chinese firms at the world’s technological frontier. To achieve this goal, HIDZs, universities, and research institutes received extra financial and other support from the government if they were operating in line with national aims, particularly in AI, blockchain, robotics, and semiconductors. Given the remarkable jump toward the world’s technological frontier, perhaps best epitomized by the MIC 2025 initiative, China’s startup capitalism score for innovation is an impressive 4, placing it closest to the Mark I ideal type.
The arena to see the second largest jump between the antecedent and startup capitalism scores on figure 5.1 is social purpose. It began with a score of 2, reflecting the primacy of domestic aims of decentralization and regional growth, and shifted out to a score of 4, owing to the significant rise in the link between startup-led innovation and national security. During the reform and opening period that preceded WTO accession, economic growth drove the Chinese developmental state. When this period started, China was a poor, underdeveloped country, so policy motivations were around inclusive growth. Following WTO accession, the social purpose shifted to job creation as well. Partly, this reflected China’s changing employment structure. SOEs were shedding jobs as they automated processes to become more competitive. Private-sector jobs had to absorb a growing share of total employment. Innovative startups were seen as an important part of the overall jobs mix. Post-GFC, startups became even more integral to job creation, as mass entrepreneurship would see the encouragement of founders creating their own jobs and growing their startups, thus employing others. Yet, the social purpose of startup promotion in China has experienced a move toward more external motivations, with national security at the fore. External motivations, particularly what Tai Ming Cheung (2022) calls techno-security, have ascended considerably since Xi came to power in 2012.
In summary, starting from the reform and opening period, small firms received support from the government as agents of innovation, in some ways more like the approach taken by Taiwan. But this encouragement for widening entrepreneurial pools became more systematic and better defined following China’s WTO accession, when its startup capitalism came to fruition. In the first decade of the twenty-first century, startups received targeted economic largesse as well as social recognition, with equity funding growing, a shift toward radical innovation, and the promotion of entrepreneurship toward more fluid labor markets. This all points to a move toward Mark I. Yet, in China more than the other cases, there is significant variation across industries. There has also been an increasingly difficult regulatory environment to navigate, with startups finding that some markets become off-limits overnight (e.g., cryptocurrency) and that (foreign) capital markets are more difficult to access. In critical technology arenas, government tactics entail startups being regarded as external resources for national champions, like SMIC, to benefit from. For this reason, the China trajectory also retains elements closer to the oligopolistic competition mode.