Strategic coupling in global financial networks: divergent trajectories of domestic and foreign venture capital investments in the Yangtze River Delta, China

Existing research on venture capital (VC) investment in the developing countries has mainly focused on foreign-originated VC from western economies, while overlooking the rise of domestic VC firms and subsequent outcomes of regional development. Drawing upon the Global Financial Networks (GFNs) and Global Production Networks (GPNs) perspectives, an integrated analytical framework is developed to examine and compare the divergent trajectories of domestic and foreign VC firms in the Yangtze River Delta (YRD), one of the VC hubs in China. Based on a dataset containing 1180 VC investment deals involving 340 VC firms and 69 portfolio companies, this study reveals while foreign VC firms play an important role in coupling the Chinese VC market with external markets, domestic VC firms are increasingly dominant in financing Chinese companies’ overseas listings through both offshore and RMB funds. In particular, the case study of Shanghai Industrial Investment Company Limited (SIIC), one of the earliest state-backed VC in China, highlights the critical role of institutional contexts in shaping region’s interactions with GFNs, emphasizing the Chinese state’s strategic efforts in leveraging GFNs to foster the domestic VC market. The strategic coupling of the YRD in the GFNs showcased the divergent coupling processes induced by foreign and domestic VC firms in the evolving institutional context. This study bridges GFN’s structural focus on network power asymmetries and GPN’s insights into territorial embeddedness in connecting global and domestic VC markets in regional development.