The Evolution Characteristics and Influence Mechanism of Chinese Venture Capital Spatial Agglomeration
Li Yao; Alex Singleton; Pingjun Sun; Guanpeng Dong (2021). International Journal of Environmental Research and Public Health, 18(6), 2974. DOI: 10.3390/ijerph18062974
Abstract
As an emerging financial entity, venture capital has a significant impact on regional development. However, the research on venture capital mainly focuses on the fields of finance, management, and economics, and fewer researchers study venture capital from the perspective of geography and space. This research explored the evolution characteristics and influence mechanism of Chinese venture capital spatial agglomeration. The innovation of this paper lies in including the spatial effect and conducting a spatial econometric analysis of the spatial agglomeration of venture capital in China after the exploratory analysis of the factors affecting the spatial agglomeration of venture capital. Firstly, based on the data of study area, this paper found that the spatial distribution of venture capital in China had an obvious agglomeration characteristic by using multiple measurement methods. Secondly, by constructing the spatial econometric model based on three different spatial weight matrices, we found that the science and technology environment, financial environment, social environment, and entrepreneurial environment levels were the main factors to affect the agglomeration of venture capital. Thirdly, due to the degree of spatial agglomeration of venture capital being divided into three stages in terms of time dimension, after the regression analysis of different periods, we found that the factors which affected spatial agglomeration of venture capital changed significantly with the passage of time. In addition, from the regression results of eastern, central, and western region samples, we can see that the degree of spillover effect was the lowest in the central region, the highest in the western region, and the middle in the eastern region. At last, this paper provided useful policy enlightenment for enterprise innovation, industrial upgrading, and regional economic management.
Extended Summary
This research investigates how venture capital investment clusters geographically across China and identifies the factors driving these spatial agglomeration patterns. Using data from 31 Chinese provinces spanning 2003-2018, the study employs spatial econometric modelling techniques to examine venture capital distribution patterns and their underlying mechanisms. The research draws on the Zero2IPO Database alongside economic and demographic data from national statistical sources to construct a comprehensive analysis of regional venture capital flows.
The paper demonstrates that venture capital in China exhibits pronounced spatial clustering characteristics, with investment heavily concentrated in first-tier cities and eastern coastal regions. Beijing, Shanghai, Guangdong, Zhejiang, and Jiangsu emerged as dominant centres, accounting for 86.47% of the country’s venture capital by 2018. This geographic concentration reflects venture capital’s preference for proximity to established financial centres, high-tech industrial clusters, and regions with superior innovation ecosystems.
Through spatial econometric analysis using three different weighting matrices, the research identifies five primary environmental factors driving venture capital agglomeration: economic development levels, science and technology innovation capacity, financial market sophistication, social infrastructure quality, and entrepreneurial activity levels. Economic environment emerges as the most influential factor, with regions demonstrating higher GDP per capita attracting significantly more venture capital investment. Scientific and technological capabilities also prove crucial, as measured by patent applications and research intensity.
The temporal analysis reveals three distinct phases of venture capital spatial evolution. From 2003-2007, agglomeration levels initially rose then declined. The 2008-2012 period showed relatively stable but low concentration levels, whilst 2013-2018 witnessed renewed increases in spatial clustering. These patterns reflect broader economic cycles, policy changes, and market development stages affecting China’s venture capital industry.
Regional analysis demonstrates varying spillover effects across China’s economic zones. Western regions exhibit the strongest spatial spillover effects, followed by eastern regions, whilst central regions show the weakest inter-regional influences. This pattern suggests that government development strategies, particularly the Western Development Initiative, have fostered greater policy and institutional coordination amongst western provinces.
The research has significant implications for regional economic policy and industrial development strategy. It suggests that successful venture capital ecosystems require coordinated development of multiple environmental factors rather than isolated improvements. Policymakers should focus on strengthening regional innovation capabilities, improving financial market infrastructure, and fostering entrepreneurial cultures to attract venture capital investment. The findings also highlight the importance of regional cooperation in maximising positive spillover effects and reducing geographic inequalities in access to venture financing.
Key Findings
- Venture capital in China exhibits pronounced spatial clustering, with five provinces accounting for 86.47% of total investment by 2018.
- Economic development level emerges as the most significant factor driving venture capital spatial agglomeration patterns across regions.
- Spatial agglomeration evolved through three distinct phases: initial rise (2003-2007), stabilisation (2008-2012), and renewed clustering (2013-2018).
- Western regions demonstrate the strongest spatial spillover effects, whilst central regions show the weakest inter-regional influences.
- Science and technology environment, financial development, and entrepreneurial activity significantly influence venture capital location decisions.
Citation
@article{yao2021evolution,
author = {Li Yao; Alex Singleton; Pingjun Sun; Guanpeng Dong},
title = {The Evolution Characteristics and Influence Mechanism of Chinese Venture Capital Spatial Agglomeration},
journal = {International Journal of Environmental Research and Public Health},
year = {2021},
volume = {18(6)},
pages = {2974},
doi = {10.3390/ijerph18062974}
}