China to have VC play bigger role in boosting its hi-tech industry

Cheng Siwei, Vice Chairman of the Standing Committee of the National People's Congress, promised to create a favorable environment to spur the venture capital market in China. To this end, the government should, he insisted, support but not control, encourage but not interfere venture capital business.

He defined the government's role in boosting the venture capital business. He said the legal system should provide incentives, capital sources, and exit to the venture capital business and make limited partnership possible.

Second, he noted, an atmosphere of encouraging to take risks and tolerating losers should be created, as what the Silicon Valley in US has impressed him.

He mentioned his efforts on building a supporting system for the business. There are VC forums, publications and research institute.

He made the remarks on January 18 at the 3rd UK-China Hi-tech Forum in Beijing. One of the sessions of the forum was focused on the venture capital. The whole event marks the launch of the year long campaign of showcasing the latest development made by Chinese and British scientists on the fields of common interest, such as stem cell, bioscience, energy, climate change. UK-China Partners in Science, as it is called, is initiated to promote the collaboration on science between the two countries which have built a comprehensive strategic partnership.

As one of the founders of China's VC market, Cheng keeps close watch on the growth of VC business. He noticed that 80 percent of the venture capital in China has been invested in hi-tech companies by 300 to 400 VC businesses which held about 5 to 6 billion yuan. In 2004, there were 370 articles focusing on VC. More and more Chinese enterprises have been listed at overseas market.

However, he pointed out that the scale of the VC market was still too small, especially when compared with that in US where 18 billion USD of VC was input to 1500 to 1600 projects annually in the recent two years.

In the process of industrialization of scientific researches, only 2.3 percent was funded by venture capital. In this regard, UK has some successful experience to share with China which is eager to make hi-tech the driving force to fuel its economy. As Dr. Liu Yanhua, Chinese Vice Minister of Science and Technology put it at the Forum, China constitutes a big market for venture capital business and the two countries should join hands to push forward the economic growth.

Foreign VC investors kept abreast with but then outraced Chinese venture capitalists in recent years. Now 80 percent of input comes from foreign investors. Domestic VC investors mostly have government background.

Given this, Cheng urged more understanding and further studies on venture capital. Financial experts have predicted that as much as 15 billion US dollars in venture capital could pour into the Chinese mainland in the next five years. Mergers and acquisitions, along with direct investment, is the mainstream of foreign investment. In Asian-Pacific region, Chinese companies have became the favorite targets of M&A deals. More state-owned enterprises are expected to be involved in M&A in the future.

By People's Daily Online