Document Type

Working Paper

Publication Date

2019

Subjects

Startup, Covenants Not to Compete, Stock Option, Employee Stock Ownership Plan (ESOP), Venture Capital

Abstract

The rise of China’s tech companies in the global economy raises an urgent need to understand how China incubates its tech startups. China’s tech startup ecosystem presents two puzzling legal arrangements for human capital in light of Silicon Valley’s experience: the co-existence of enforceable non-competes and the high-velocity labor market; the common use of stock options but with a buyback norm. This article delves into the peculiarities of China’s legal and political institutions to resolve the legal puzzles. This article also speaks to a global policy debate about the replicability of Silicon Valley and the necessity of such replication. The Chinese experience offers opposite examples showing the replication complexity: replication yet with deformed practices and non-replication yet with similar outcomes. The findings suggest that there is unlikely a one-size-fits-all model for creating an innovation economy.

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