Shanghai Daily news
 
China is drafting rules to let insurers start venture capital business and urge local governments to pool private capital to finance start-up firms, a senior official at the nation's top economic planner said yesterday.

The central government is working on detailed regulations governing insurance firms' participation in the venture capital sector, said Guo Xiangjun, deputy director of Department of Fiscal & Financial Affairs of the National Development and Reform Commission.

The move is aimed at attracting insurance capital into the venture capital industry to boost the sector's size and stability, Guo said during the Shanghai International Forum of Venture Capital and Private Equity Investment 2007.

The central government is also drafting guidelines to prompt local governments to beef up their performance in helping set up regional venture capital funds by raising money from private investors, Guo said.

The program has been piloted in a raft of places, including Shanghai and Beijing, but in some areas local governments just used their own funds to conduct venture capital investment and didn't tap private money, according to Guo.

"The government shouldn't play a leading role and can't intervene in the operation of venture capital," said Guo. "But it can give guidance over the business to ensure its healthy development."

The total investment by 345 domestic venture capital companies reached a combined 41.08 billion yuan (US$5.45 billion) by the end of 2006, according to Guo. It's far behind the ideal level of 200 billion yuan annually, which accounts for one percent of China's gross domestic product, Guo said.

To facilitate growth of the venture capital industry, China's Cabinet has approved a proposal to set up a Nasdaq-like market for fledgling firms and the board will be launched "very soon," Guo said.

It will help venture capital have better exit strategies after investing in start-up companies, according to Guo.

China should also beef up draft rules to supervise the private equity sector and boost public awareness of private equity investment, Fan Gang, director of the National Economic Research Institute, said during the forum.

Fan, a member of the central bank's monetary policy advisory committee, noted that private equity funds should also focus on traditional industries such as manufacturing, where China has an edge on the global stage, besides training sights on the new technology sector.