Equity market a way out for venture capital
By Wang Hongjun (chinadaily.com.cn)
Updated: 2004-04-05 15:46

The biggest hurdle venture capital encounters in China is a lack of an exit mechanism, while the development of equity market may provide a platform for the way out, said Xiong Yan, president of China Beijing Equity Exchange.

Xiong said the equity market is a good way out especially when the country's open capital market is not firmly established or immature and negligible at its initial stage.

An easy flow mechanism is the key to China's venture capital, while there is no multi-level market currently in place in the country, posing a threat to the further development of China's enterprises, especially the small and medium-sized ones, because the majority of them failed to access funds through a variety of sources. Even the opening of second board for small and medium-sized enterprises will be far from enough. Therefore, it is highly necessary to set up a multi-level capital market in the long run, said Xiong.

Clear corporate equity structure needed

Xiong said venture capital investors attach great importance to the equity structure of the projects they are investing in, they demand an open and fair corporate structure, a precondition of a company's growth speed and integration of corporate resources.

The lack has led to the growth of some enterprises in Beijing Zhongguancun area at a snail's pace, said Xiong. He cited several reasons for the opacity of the equity structure, such as lack of understanding and notional cooperation between investors and technology holders.

Many enterprises in Zhongguancun are afraid of being controlled by outside investors, which has dampened enthusiasm of venture capitalists.

In addition, said Xiong, enterprises should have a clear idea of how much the project is worth and how much they really need in the financing process.

Equity exchange is acquisition with Chinese characteristics

China's equity exchange is an acquisition with Chinese characteristics, said Xiong. Currently in China, there is no direct connection between equity structure, decision-maker's assets and pricing, and there is much room for improvement in investment environment such as intermediaries, professional managers, regulatory system and financing supports.

Therefore, China's State assets have to undergo strategic structuring, which has resulted in a huge problem. The consensus is that a market move should be governed by the market itself, that is the reason why the equity market came into being.

Beijing equity exchange focuses on high-tech companies

Xiong said Beijing equity market will stage a series of preferential measures to support the development of high-tech firms, including government subsidies and tax exemption. The equity market will concentrate on the acquisition market and regional market especially in the high-tech sector.

China Beijing Equity Exchange is a comprehensive equity transaction platform authorized by the Beijing Municipal Government after the restructuring of the former Beijing Equity & Assets Exchange (BEAE) and China-Zhongguancun Technology & Equity Exchange (CTEE).

It is one of the first trial equity transaction platforms authorized by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) for the transfer of ownership of State-owned Enterprises (SOEs) owned by the Central Government.

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