China's State Council proposes better deal for foreign VC firms
Foreign venture capital investors will receive equal treatment to their domestic counterparts as part of efforts to boost funding for start-ups, according to the Chinese government.
A statement issued by the State Council following a meeting chaired by Premier Li Keqiang indicated that overseas VC players will be granted better market access and become subject to streamlined approval process.
Domestic financing channels for start-ups will also be expanded, with leading corporates, start-up incubators and insurance firms all encouraged to provide capital. In addition, the government will call upon state-owned enterprises (SOEs) to establish venture investment arms and fund-of-funds to get involved in the industry. There wil also be tax incentives for VC firms and steps will be taken to facilitate exits through IPOs, equity transfers and M&A.
These proposed measures correspond to ongoing efforts to enrich the institutional-investor base for early-stage funding, and to cover the full cycle of venture funding from seed to growth stages. The number of registered start-ups exceeded 2.62 million in the first half of 2016, up 28.6% year-on-year, according to the National Development & Reform Commission.
Last year, the State Council announced the launch of a government-guided venture capital fund worth $6.5 billion to support start-ups in emerging industries. Li also said the government would promote start-ups with "special ownership structures" to list onshore.
The Ministry of Commerce (MofCom) then issued a draft rule earlier this year that would legalize and regulate foreign investments using VIEs. These structures are a means of allowing offshore investors such as VC funds into industries where direct exposure to certain assets is restricted or prohibited. The legal status of the VIE has never been clear and companies are not permitted to use it if pursuing domestic listings.
In response to central government's policy guidelines, Chinese Reform Holdings Corporation (CRHC), a state-owned asset manager backed by the State-owned Assets Supervision & Administration Commission (SASAC), launched a VC fund with a target of $30 billion.
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