China to create US$6.5b venture capital fund to support startups

[SHANGHAI] China will set up a government venture capital fund worth 40 billion yuan (S$8.7 billion) to support startups in emerging industries, in its latest move to support the private sector and foster innovation.

"The establishment of the state venture capital investment guidance fund, with the focus to support fledging startups in emerging industries, is a significant step for the combination of technology and the market, innovations and manufacturing," China's State Council, the cabinet, said in a statement.

"It will also help breed and foster sunrise industries for the future and promote (China's) economy to evolve towards the medium and high ends," it said in the statement published in the government's website, www.gov.cn, referring to sectors which the government is promoting such as technology and green energy.

The government issued the statement after a meeting on Wednesday. It did not give a timetable, but past experience has shown that such a fund could be established within a few weeks after an announcement.

China's venture capital market remains small, the legacy of the country's decades of the planned economy in which private sector's development is largely subject to a great variety of restrictions.

In the first half of 2014, 83 new funds were set up in China's venture capital market, with fresh capital eligible for investment in the mainland surging 157 per cent from a year earlier, but remaining at a moderate US$6.76 billion, according to a research by Zero21PO Capital, a service provider and investment institution in China's private equity industry.

During the period, 517 investment cases occurred in the market, with details of 440 made public on a combined investment capital of US$5.3 billion, the research showed.

Still, the government is increasingly supporting the expansion of the industry since two years ago when mapped out a strategy to let market forces to eventually play a "decisive"role in China's economy.

Last month, for instance, regulators issued new rules to allow insurance companies to invest their huge pool of premiums in venture capital funds for the first time.

The cabinet said in Wednesday's statement that the planned fund would be funded by the government's existing capital designated for expansion of emerging industries and by state corporates, while also inviting private partners to participate in.

The fund will render public tenders to invite high processional asset managements to operate, with returns giving priority to private investors, it said.

REUTERS