Move expected to benefit startups, small and medium-sized companies

The central government has allocated 2 billion yuan ($324.8 million) to take stakes in 49 venture capital funds, a move that it hopes will attract additional investors, the Ministry of Finance said in a statement on Tuesday.

Local governments will also take stakes in these funds.

The funds will focus on startups and small and medium-sized innovative companies.

The investment areas will be strategic emerging sectors such as alternative energy, new materials, energy conservation and environmental protection, biomedicine and low-carbon industries.

"A market-oriented long-term mechanism will be established to support small and medium-sized innovative enterprises and create more jobs," said the statement.

Since 2009, the central government has allocated 9.1 billion yuan for similar efforts and attracted local government and private funds totaling 42.7 billion yuan to set up 190 VC funds. Many of the companies these funds invested in have become industry leaders.

"This is a good thing for governments, investors and companies because their goals are consistent," said Yang Hongqiang, president of Wuling Mountain Tourism Industrial Investment Fund, a national industrial investment fund set up by Bright Stone Investment Management Ltd and the Tongren municipal government in Guizhou province.

Yang said that government involvement increases investors' confidence, and local governments aim to support industries in their regions with the participation of professional investors.

Wan Ge, a senior analyst at ChinaVenture Group, said that setting up such funds can be more effective than merger and acquisition funds because the investment in each deal is smaller.

"The Chinese government has chosen a wise way to support more SMEs in China, and we just hope a market-oriented mechanism can be established," said Wan.

Shen Da, managing director of Zero2IPO Group, said that the main task of government is to identify professional private equity and VC firms for these government-guided VC funds and let them seek and invest in deals rather than participate too much in decisions.

Beijing, Shanghai, Shenzhen and Jiangsu province are the most popular regions for government-guided funds, according to Zero2IPO.

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