Another report says that new rules on overseas investors undertaking mergers or acquisitions with Chinese companies have yet to influence the industry in the quarter that started from October.

The annual report, compiled by the Zero2IPO Group, which provides services in China's venture capital and private equity industry, says that money continued to flow into the information technology sector in the second half of 2006 despite a decrease in overall investment during the period.

The report, based on research on 300 venture capital institutions with active performance in China, put the growth of investment at a "stunning" 51.5 percent last year, with some $1.778 billion at play.

"While information technology remains the dominant industry for investment, there was significant growth in areas such as healthcare, consumer and retail companies and clean technologies," Partridge says.

"The continuing growth of the Chinese economy and the middle class as well as increased focus on innovation are the primary reasons for significant investment growth in these sectors," he added.

By industry, 131 information technology companies were financed in 2006, receiving $920.7 million, a surge of 34 percent in capital from 2005, the China Quarterly Venture Capital Report shows. The most popular segment within the IT industry was the Internet-dominated information services segment, which attracted $464.6 million and 73 of the deals.

The business, consumer and retail industry category, which is made up of non-technology companies, posted 57 deals and $613.3 million in investment in 2006, a rise of 20 percent more deals and 40 percent more capital than in 2005.

While healthcare is a relatively small investment sector in China, particularly in comparison to the US and Europe, it did see 10 deals in 2006 and $47.5 million invested, up from six deals and $5.8 million in 2005.

"Another sign of the strength of the market is that investors are helping their companies to ramp up quickly in the global marketplace by funding them with increasingly larger sums a trend that was also apparent in other major venture capital regions over the past year," says Stephen Harmston, Director of Global Research for VentureOne.

"The median deal size in China is now $5.9 million, up from $3.7 million in 2005, the highest median in at least seven years," he says.

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