Venture capital viewed as essential for promoting industrial innovation
Venture capital investment has become an essential tool to promote China’s high-tech industries, especially during the global financial turmoil.
The speed of development in innovative industries in the United States and Europe in the past 10 years proves that VC investment can enhance a nation’s capabilities extremely quickly. Many developing countries are also embracing VC investment.
“The government should help stimulate VC investment and guide capital into all types of innovative companies when the market is full of idle capital and companies don’t have a quick channel to financing,” said Song Dezheng, deputy director of the Facility and Finance Department under the Ministry of Science and Technology.
“An improved VC investment system and a mature capital market can speed up the development of high-tech companies,” Song said.
On average, VC investments account for about 1 percent of gross domestic product in the US, while in China they account for only 0.025 percent.
“China’s VC market has a lot of potential but it is still short of an advanced legal system, local talents and self-regulated rules,” Song said. He also stressed the need for more exit channels for VC cash — ways in which investors can cash in their investment, such as IPOs.
The ministry allocated 200 million yuan (US$29.2 million) in 2007 and 2008 to a guidance fund, which has attracted more than 4 billion yuan of VC funding. The fund mainly supports emerging small and medium companies.
“Small and medium companies are more flexible and willing to undertake risks, but they always face a shortage of capital and it is hard for them to raise financing through normal channels,” said Chen Gongmeng, director of the China Venture Capital Research Institute.
“However, as technology improved in SMEs, both the supply and demand of innovative products boomed, which in turn reduced market risks, so VCs poured into the sector because of its high added-value,” Chen said.
Tags: China Investment, IPO