In an environment of increasingly complex policy dynamics, economic policy uncertainty (EPU) has become an important macro factor shaping private investment decisions. How public investment can stabilize overall investment and guide private capital under such uncertainty has therefore attracted considerable attention. Using a dataset of investment events by Chinese government venture capital (GVC) funds and private venture capital (PVC) funds over 2011–2022, and employing the China EPU index constructed by Baker et al. (2016), this paper systematically examines the heterogeneous effects of EPU fluctuations on the investment behavior of these two fund types and further investigates the role of GVC as an investment “stabilizer” when PVC investment contracts.

The main findings are as follows: First, rising EPU leads PVC to reduce investment, whereas GVC expands investment. Second, GVC maintains stable investment patterns toward key industries and local firms even when EPU increases. Third, GVC plays a guiding role under heightened EPU, as it is more likely to act as a lead investor and invest at earlier stages, significantly increasing the likelihood that investee firms subsequently receive PVC follow-on financing. Fourth, the expansion of GVC investment is jointly driven by governmental incentives and fiscal constraints: It is more pronounced in regions facing stronger growth pressure and larger PVC contractions, and is stronger among GVC with lower fiscal pressure, which also tend to adopt risk-diversification strategies. The results suggest that GVC possesses institutional advantages under heightened EPU and can partly cushion the adverse effects of ambiguous policy signals on market investment.

The policy implications of this paper are threefold: First, in periods of rising EPU, enhancing policy predictability is crucial for strengthening the countercyclical role of GVC in stabilizing private capital investment. Second, improving the alignment between governmental incentives and fiscal capacity can enhance the capability of GVC to offset contractions in private investment. Third, further strengthening the market-oriented operation and guiding efficiency of GVC is essential for sustaining investment in key industries and innovative firms.