China will kick off a new policy "within two weeks" to reduce the tax payments of venture capital and private equity firms, an official at the National Development and Reform Commission's (NDRC) finance division said at a forum in Shanghai at the weekend.

The new policy aims to encourage these firms to invest in Chinese enterprises, especially small- and medium-sized high-tech companies, which urgently need capital and find it difficult to get bank loans, said Liu Jianjun, the official at NDRC.

Under the new policy, a firm which focuses on investing in start-up companies in China which generate a 20 percent annual return may be allowed to pay a lower tax, according to Liu, who declined to reveal the reduced rate as it hasn't been officially released.

Companies with investment in real estate and listed firms cannot enjoy the tax-reduction policy even though they may have heavily invested in start-up companies, said Liu.

"The policy aims to solve the problems that promising firms can't get enough capital to expand in the initial period," Liu said at a venture capital forum in Pudong New Area.

The commission's new policy will boost the already-heated venture capital sector in China, industry insiders said.

In the first nine months, VC firms have invested a total of 1.21 billion U.S. dollars against 775 million dollars in the same period last year, said Zero2IPO Ltd, a Beijing-based consultant for the VC and private equity industry.

Besides the tax reduction policy, the government will also launch seven other policies to support the industry, Liu told Shanghai Daily.

(Shanghai Daily October 23, 2006)