VCs eye opportunities, risks in China

Veteran venture capitalists speak to MIT Sloan and Tsinghua University students in Beijing

China is ripe for an infusion of venture capital but still poses fundamental investment risks, said veteran venture capitalists last month at a panel discussion in Beijing for students from MIT Sloan and Tsinghua University School of Economics and Management.

Venture capitalists in Beijing speak to students from MIT Sloan and Tsinghua University Photo: At a panel discussion in Beijing, veteran venture capitalists speak to students from MIT Sloan and Tsinghua University.

The country boasts a sizable and technically savvy population, a rapidly growing economy, a supply of top engineering and technical students, and a government aiming to instill a transparent system of corporate governance.

Each of these factors appeals to venture capitalists, the panelists said, but investors also must weigh risks unique to China.

The country has an inefficient capital market, they said, and its currency — the Renminbi (RMB or CNY) — is not exchangeable on the international market. Also, many companies need to improve their corporate governance, and intellectual property protections are lacking, particularly in software industries.

Though venture capital is a relatively new phenomenon in China, the panelists said a number of domestic and foreign venture capitalists have emerged, mostly in the Beijing, Shanghai, and Shenzhen regions.

They said more will follow, lured by signs of growth:

  • With the world's largest population — over 1.3 billion — China represents a major market for consumer and electronic goods, Internet-related applications and services, and cellular phone service.
  • Capital investment in infrastructure is necessary to sustain China's rapid economic growth, and that need creates opportunities for established and startup companies.
  • China has a large number of engineering and technical students — many of them trained at Western universities and companies — with the talents needed to build new companies and industries.
  • The Chinese government is working to instill more accounting transparencies, to promote ethical corporate governance, and to develop an efficient and liquid equities market.

The panelists said venture capital already is responsible for a number of well-known Chinese companies — among them, Sina, Sohu, Shanda, EachNet, Dangdang.com, Joyo.com, Baidu, Ctrip.com, SMIC, and Starbucks Beijing.

They predicted that domestic venture capitalists will emerge as a greater force, as more Western-trained Chinese return to domestic companies, and that companies with a direct linkage to the country's consumer population will draw the most interest from venture capitalists.

The panel included venture capital veterans from Walden International, Softbank Asia Infrastructure Fund, H&Q Asia, WI Harper, Tsinghua Science Park VC, Simens Venture SMAC, and IDG.

The MIT Sloan students were in Beijing as part of the China Trip during spring break. Tsinghua University is one of three Chinese universities that make up the MIT-China Management Education Project.

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