China's State Council to issue guidelines to promote venture capital

Comprehensive guidelines are to be issued by China's State Council to ensure the 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 start-ups. 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 (NDRC) 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.

"We need to encourage private investors and protect their lawful rights and enthusiasm," he 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 pointed out 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, the country 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.

Policy coordination is necessary for the NDRC, which is in charge of the new guidelines along with various other government departments. Policies regarding venture capital need to be adjusted, in case of overlap, with various department regulations so that the sector will be more efficient.

The mechanism of equity withdrawal in venture capital will be expanded and improved, while the guidelines also call for more comprehensive legislation on venture capital.

Government funding should play a bigger role in guiding a more sustained development of the sector, the premier said.

The State Council has just given the go-ahead to a venture capital plan in July, aiming to empower entrepreneurial innovation and boost industrial upgrading.

During a news conference a week ago, Lin Nianxiu, vice chairman of the NDRC, announced that a national venture capital fund for emerging industries, totaling 40 billion yuan (6 billion U.S. dollars), is just around the corner.

"The role of government funding needs to be fully developed. State-Owned Enterprises (SOEs) also need to promote mass innovation and unleash their potential so as to develop more vigorously with a wider market," Li said. "Otherwise, SOEs may lose their vitality." Endi