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SCMP Reporter

China is to announce a major revamp of its venture-capital rules within two years as it prepares to enter the World Trade Organisation by early next year.

It will change the way it regulates venture-capital funds, which put up money for speculative, hi-tech start-up businesses.

China has no comprehensive rules to govern this sector.

The changes, revealed by the director of Beijing's Zhongguancun Science Park, Lu Hao, at a symposium in Hong Kong yesterday, are expected to bring China more in line with the rest of the world.

The symposium on economic co-operation between Hong Kong and Beijing was chaired by Beijing mayor Liu Qi.

The proposed rules will also cover alliances between Chinese venture-capital firms and their foreign counterparts.

Draft regulations were expected to be submitted to the National People's Congress before the end of this year and hopefully would be passed by next year, industry analysts said.

The regulations are being drafted by a committee comprising a group of banking and securities professionals, including former senior officials from the Industrial & Commercial Bank of China and the China Securities Regulatory Commission, and an economics professor from Peking University.

Domestic venture-capital firms do not operate in the same way as their overseas counterparts. They have no channels through which to cash in their initial investment and reinvest the gain, and are forced to hold their share in the maturing hi-tech firms for a long time.

Some of them, especially state-owned venture-capital funds, are often not willing to sell their share because they want to retain the patent right.

Many hi-tech companies find it difficult to access funds because of the constriction of the capital flow in the present situation.

The regulations will be the first set of rules to govern the development of investment funds in China.

Once introduced, the revamped rules should facilitate the 'recycling' of venture-capital funds and make it easier for domestic hi-tech firms to tap funds.

Having a vibrant venture-capital sector is seen as the key to Chinese businesses being able to compete with foreign businesses after China joins the WTO.

An official source said the latest rules would not classify investment funds along the lines of venture-capital, securities and industrial investment funds, but as private and public funds.

He did not elaborate on the new classifications.

Mr Lu said there were now more than 10,000 research results in the science park, but only a dozen had been traded on the park's 'research results exchange market' and been transformed into marketable assets of hi-tech firms.

There are now about eight venture-capital funds in Beijing with combined capital of several billion yuan, but none are operating like their overseas counterparts, according to Mr Lu.

The Beijing Municipal Peoples' Congress plans specially for Zhongguancun park and aims to facilitate the development of enterprises in the hi-tech sector.

The legislation will cover venture-capital fund investment, intellectual property rights, anti-monopoly law and rules governing the movement of migrant talent.

There are now 7,500 hi-tech businesses in Zhongguancun, which account for 13.8 per cent of Beijing city's gross domestic product.

But only about 20 of them have been recommended by securities houses to the Shenzhen stock market for listing on the mainland's future second board for hi-tech or high-growth businesses.



Regulations to ease flows for venture capital and set guidelines for foreign players