Outside investors play an essential role

As technology develops and new opportunities arise, there will always be a demand for capital from overseas

The first wave of venture capital came in 1991. Investors intrigued by China's reform and bright future brought in $16 million that year. Just a year later, total funds jumped to $583 million, a 30 times greater. This batch of VC investment peaked in 1995, when a total of $678 million was raised. The first international VC firms accounted for more than 95 percent of the total funds raised in China in the first half of 1990s and came to dominate the country's capital funds at the time.

They came to China because the opening up process was restarting and they saw the country's great potential, despite its lack of capital.

Crucially, investors were seeing opportunities to get make profits from their investments. In October 1992, Brilliance Automotive became the first Chinese firm listed on the New York Stock Exchange. Its share price appreciated 30 percent within three months of its IPO. The new Shenzhen and Shanghai stock exchanges and the further opened financial market also provided early investors a promising vision.

At that time, China did not allow private fundraising or limited partnerships. Moreover, there were no mature market institutions or legal system.

A few funds incorporated overseas. Most of them were in form of joint venture enterprises, usually in partnership with Chinese SOEs, to help get access to more deal flows, better-secured control over VC-backed firms and "inside connections" with government.

VCs' interest at that time was not in private or high-tech companies, but rather non-privates and low-tech firms in the areas of textiles/clothing, food/beverages or industrial manufacturing. Of the 45 international VC funds between 1991 and 1997, only IDG, H&Q Asia and Walden Group were interested in high-techs. Manufacturing and consumer products accounted for about 78 percent of all VC-backed companies.

However, the Nasdaq boom in the late 1990s, excited VCs who saw IPOs like the legendary Netscape, Yahoo and Amazon. Even the Chinese government was lured by the high-tech boom and started to formulate national programs to support tech firms.

In the 2000s, with China's entry into the WTO, more iconic Chinese IT and high-tech companies were listed in overseas stock markets, including Netease, Sina, Sohu, Tencent, Baidu and Alibaba. China's skyrocketing GDP and the ever-growing capitalization of those VC-backed firms pushed international VCs in China to the top.

However, with success comes criticism. As those once-insignificant small IT firms became commercial giants with strategic importance, more questions started to be asked about the international VCs behind them. As the biggest winners in the Chinese internet story, foreign VCs not only harvested unimaginable wealth but also had controlling rights in those "Chinese" companies. Many feared that foreign owners might act against the interests of China.

However, we should wholeheartedly acknowledge and pay tribute to the international VCs who helped make China a world player in the IT revolution. VCs, like all businesses, are not heaven-sent Samaritans with a mission to nurture and grow the private and high-tech sectors in China. Nor are they evil masterminds who desire to weaken China. They are profit-making businesses.

Let us not forget that the macroeconomic environment and government policies decide market climates and direction of trends, not the players.

A stable and pro-active attitude toward international investors will be continued by the Chinese government. As Premier Li Keqiang remarked: "China is creating a fairer, more transparent and predictable environment for investment."

After 16 years as a member of the WTO, China had attracted around $2 trillion (19 trillion euros; 1.6 trillion) of foreign investment by the end of last year, achieved the fastest growth in the world and was a great beneficiary of globalization. In 2016 alone, there were more than 23,000 foreign-funded companies newly established in China. Foreign investment created 27 percent of Chinese employment and more than 30 percent of its GDP in the past 30 years.

China's reforms are progressively allowing more access for foreign investment, with less red tape and streamlined approval procedures. With the new stock market regulations and GEM board, more companies funded by international VCs will be able to list on Chinese stock exchanges.

However, staying open does not necessarily mean China will not have a bottom line. As better regulations for national security and interests become increasingly accepted global practice, in developed and developing countries alike, China will understandably be more cautious in the areas regarding sovereignty, security and the fundamental well-being of its people. And, it will try to neutralize the potential impacts of global hot money.

Amid the current trend of anti-globalization, we should applaud China's role as a steadfast counterforce, a firm supporter of international investment. With half of the Chinese population still living in rural areas - and with 50 million suffering absolute poverty - this country is still on a long march toward a modern and prosperous future. New growth points and new dynamism will bring new opportunities for innovators.

The opened-up China won't be closed again and will continue to be a hot destination for foreign investors.

The author is a research fellow of the International Monetary Institute of Renmin University of China and Beijing Foreign Studies University. The views do not necessarily reflect those of China Daily.