Business / Policy Watch

Guidelines help promote venture capital

(China Daily) Updated: 2016-09-03 08:18

Comprehensive guidelines are to be issued by China's State Council to ensure healthier and more sustainable development of venture capital.

The new guidelines were approved on Thursday at the State Council's executive meeting. Premier Li Keqiang, who presided over the meeting, highlighted the importance of venture capital development.

"Encouraging venture capital development means a lot for the country's efforts in maintaining sustainable growth and creating jobs," Li said.

"Meanwhile, China's economy still faces considerable downward pressure, yet we notice that regions that perform well in the new economy have much less pressure in ensuring the employment rate than areas that did poorly in developing the new economy," he said.

Venture capital in China refers to growth equity capital, or loan capital, invested by private investors or specialized financial institutions in innovative business startups. Investors mainly gain profits through transferring their share of equity as these companies mature.

Temporary measures were previously put in place in 2005, when the sector was still burgeoning. Over the past decade, venture capital in China, on average, has recorded an average growth of up to 20 percent a year.

The new guidelines emphasize that the development of venture capital should prioritize the new economy, and prevent the possible risk of a capital bubble. Investors should apply a more professional approach based on their own features, use credit wisely and be aware of their social responsibilities.

The new guidelines are in line with the "mass entrepreneurship and innovation" program, created by the premier in 2014, and the government has been reinvigorating the economy by encouraging more people to start their own businesses and unleash their innovation potential.

Figures from the National Development and Reform Commission show that the number of newly registered enterprises exceeded 2.62 million in the first half of 2016, up 28.6 percent compared with last year. By the end of 2015, venture capital had contributed about 2.17 million jobs.

"Developing venture capital will contribute to our country's innovation-driven development strategy and boost private investment," Li said.

Venture capital has also contributed greatly to the commercialization of innovation and scientific research findings, and it plays an increasingly important role in China's economic upgrading.

However, regulation and legislation still lag behind the sector's robust growth. As pointed out during the Thursday meeting, supervision needs to be upgraded, and better credit facilities are in high demand.

Li said that the development of venture capital should be guided by market demand and a wider range of international practices should be implemented.

"It is necessary to draw foreign investment into innovation and entrepreneurship efforts with more robust opening-up efforts. We can also learn a lot along the way," he said.

According to the new guidelines, China will also encourage more diversified venture capital companies, including angel investors. Financing channels for venture capital investors will be expanded, and tax policies for the sector will be better developed.


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