China Announces Nine Measures to Promote Venture Capital

In order to push forward the innovation-driven development strategy of “mass entrepreneurship and innovation”, promote the commerialisation of innovation and scientific research findings and foster new economic drivers for industrial transformation and upgrading and for employment growth, the Chinese government recently announced nine measures on venture capital to address the problems of shortcoming or shortfall in policy environment, laws and regulations, regulatory regime and management of capital inflow and outflow and promote the healthy development of venture capital in the long term.

1. Foster diversified venture capital investment entities

Besides encouraging institutional investors and individuals to establish corporate or partnership venture capital companies and encouraging key enterprises in different sectors and other institutions to participate in venture capital investment, individuals with capital strength and managerial experience will be encouraged to set up one-man companies to engage in venture capital activities. The establishment of alliance of angel investors and other public interest bodies will also be encouraged.

2. Expand venture capital sources through diverse channels

Support will be given to centrally-owned and state-owned enterprises, university funds and other institutional investors to invest in venture capital companies and venture capital funds of funds. Banking financial institutions will be given support to launch M&A loan business and raise the standards of financial services for mergers and reorganisations by venture capital companies.

3. Strengthen government guidance and policy support

Tax support policies for encouraging venture capital companies and angel investors to invest in seed-stage or startup-stage high-tech enterprises will be studied. Steps will be taken to further improve preferential policies of investment tax credit for venture capital companies. The launching of personal income tax reform for angel investors will be studied and a mechanism for the alignment of venture capital with government projects will be established.

4. Improve laws and regulations for venture capital

Steps will be taken to improve the system of management of foreign-invested and state-owned venture capital enterprises and promote the promulgation of interim measures for the administration of private equity funds as soon as possible.

5. Further improve the exit mechanism for venture capital

Steps will be taken to widen the exit channels for venture capital investment, improve the trading mechanism of the national SME share transfer system, and encourage venture capital to realise market-based exit through such means as merger and reorganisation. These measures will expand capital inflow on the one hand and diversify and smoothen the exit channels on the other, thus funnelling more funds into venture capital investment and facilitating the growth of a vibrant venture capital industry.

6. Optimise the market environment for venture capital

An oversight policy that differentiates between venture capital companies and other private equity funds will be adopted and a system of more liberalised market access suited to the characteristics of the venture capital sectors will be established. Information disclosure and risk alert will be strengthened and a system of clean-up and expulsion will be established for venture capital companies that do not engage in actual investment but rather help building an investment bubble and engage in other acts of disrupting market order. Steps will be taken to speed up the establishment of a blacklist system for serious acts of dishonesty in venture capital sectors, strengthen intellectual property rights protection in the early stages of entrepreneurship and innovation, and put on a sound footing the mechanism of investigation and punishment of property rights infringement.

7. Promote two-way opening of venture capital sector

Control over foreign investment will be lifted and management procedures will be streamlined. Competitive domestic venture capital companies will be encouraged to “go out” actively and steadily. Venture capital companies will be guided and encouraged to increase their investment in high-end R&D projects abroad and in Hong Kong, Macau and Taiwan.

8. Improve the self-policing and service systems for venture capital sector

Steps will be taken to speed up the establishment of a national venture capital association in accordance with law, strengthen the building of accounting, information, legal, advisory, education and training and other intermediary service systems relating to venture capital, strengthen the training of venture capital investment professionals, and attract more outstanding talents to engage in venture capital investment.

9. Strengthen co-ordination by all parties

A mechanism for the sharing of information on promotion of venture capital by the government departments concerned will be established.