Thu, Sep 22, 2016 - Page 10 News List

China paves the way for surge in venture capital


The Chinese government is developing an bigger appetite for venture capital (VC).

The Chinese State Council is encouraging more government agencies and companies to funnel money into private start-ups while getting the state to take part in the nation’s technology boom.

In a document published on Tuesday, the nation’s highest policy overseer urged government-led funds to play a greater role in guiding venture-capital investment, while promising to level the playing field for foreign funds.

“With the current rate of slowdown in the economy, the Chinese government wants to have a more vibrant market and they will need more companies to mature. All that needs funding,” said Hans Tung (童士豪), a general partner at GGV Capital in Menlo Park, California. “It’s best that the local government guidance funds invest into existing VCs instead of directly participating in the market.”

China is already a regional powerhouse in technology deals, even as global venture capital flows falter with investors growing wary about stretched valuations.

Data from AVCJ Research showed that venture investments totaled US$9.8 billion last year, more than half of Asia’s total.

That excludes an eye-popping amount of state involvement.

Chinese government-backed venture funds tripled the amount under management in a single year to 2.2 trillion yuan (US$330 billion) last year, according to consultancy Zero2IPO Group, making it the biggest pot of money for start-ups in the world.

Much of that was in so-called government guidance funds, in which local or central agencies play some role.

“Chinese local government guidance funds are more engaging with the VCs than the typical university endowments. They are curious, it’s a new trend. They also want to showcase what they’ve done,” Tung said.

The council guidelines, while light on details, outlined a broad spectrum of objectives and directed agencies from the securities regulator to national economic planner to oversee specific initiatives. It expresses global aspirations, calling on local companies to develop funds that invest abroad.

The Chinese Cabinet urged state firms to invest in venture capital or set up their own funds and said it would consider letting local-government financing vehicles, which borrow on behalf of local governments often barred from doing so, to upgrade to venture capital companies. It wants to improve the environment for venture-capital exits by establishing start-up-friendly stock market boards. It also promised to ease entry for foreign firms.

“Venture capital is an important method of improving investment structures and increasing effective investment,” the council said.

One aim should be to “promote China’s venture capital industry to among the world’s most advanced,” it said.

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