China’s Government Venture Capital Guidance Funds and Different Types of Innovation: Spillover Effect and Action Mechanism

We examine whether China’s place-based government venture capital guidance funds (GVCs) reshape the spatial distribution of urban innovation. Although China’s GVCs have raised over 10 trillion yuan in the past two decades, their role in innovation-led growth remains largely unexplored. Exploiting the central government’s fiscal reform and the staggered rollout of prefecture-level GVCs, we implement a spatial difference-in-differences method that distinguishes innovation generation from commercialization and captures spillovers. We find that GVCs promote venture capital agglomeration and cross-city investment spillovers, increasing the economic value of innovation in both host and neighboring cities, while improving innovation quantity and quality in host cities. Our findings reveal previously overlooked spatially asymmetric effects of GVCs, arising from their heterogeneous investment strategies across cities.