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Chris Davis

China's technology sector proves a magnet for US investors

UNITED STATES venture capitalists are expanding their investment activities in Asia, with China as their top target.

Their plan over the next five years is to focus 20 per cent of their Asian investment activities in China and 18 per cent in India, according to a survey by the Arlington-based National Venture Capital Association.

'A growing number of venture capitalists from the US are beginning to realise that Silicon Valley is no longer the epicentre of the technology world but just one of at least five tech zones worldwide that include China and India,' said Hanson Cheah, managing partner of AsiaTech Ventures, a Hong Kong-based venture capital firm that focuses exclusively on internet and IT industries.

AsiaTech is one of the few Asian capital venture companies that concentrate exclusively on the technology sector.

'The old joke used to be that Silicon Valley venture capital investors would only invest in companies with a 'nine' in their postal address. Now they are flocking to China in  droves,' said Mr Cheah, a member and former chairman of the Hong Kong Venture Capital and Private Equity Association.

The  number nine refers to the Silicon Valley zip code or postal address.

Mr Cheah said China's present technology environment bears few similarities to the free-wheeling style of California's Silicon Valley, where venture capitalists and angel investors (those who invest capital but take no part in the business of the company) famously court embryonic tech firms with little more than promising ideas.

However, early-stage US investors are now ploughing money into China, and have even started posting permanent staff in Beijing and Shanghai.

The total number of US venture capital deals in the mainland last year soared to its highest level in 10 years.

The 43 deals also dwarfed the 24 investments made by US venture capitalists last year in India, a country better known for its high-tech developments.

Mr Cheah said many private equity investors compare China's technology sector to the US technology boom in the 1970s, when investment poured into Silicon Valley.

Industry watchdogs say that the US then had a successful mix of talent, university research and capital.

China has the first two but lacks capital and sophisticated investors to direct investments accurately into next-generation technologies.

Mr Cheah said it was easy to see why US venture capitalists and private equity companies believe there are pots of gold to be found in Chinese technology and internet sectors following the successful US stock listing by Chinese search engine Baidu.com.

The company's stock quadrupled to more than US$122 per share in its first trading day on the Nasdaq, the best opening day for a stock since 1999.

Other Chinese dotcoms have also been attracting attention.

Yahoo! paid US$1billion for a stake in the Chinese e-commerce firm Alibaba.com,  and said the two companies would work together in an exclusive partnership in China.

'The combination of perceived high growth potential and soaring stock prices has attracted investment banks, private investors and venture capitalists like moths to a light bulb,' Mr Cheah said.



Silicon Valley of the east