Conclusions

Based on the discussions and analysis above, we have the conclusions in detail on the development of the VC industry in China,

1. The fast economic growth in China drives the growth of VC industry

The roaring of China economy provides a profound fundamental for the development of VC industry. China has taken place of Germany to be the largest export country; and its gross domestic product has surpassed Japan and become the second largest economy. It therefore induces the interests of the global capital to flow in and enjoy the significant growth.

The Chinese VC market is growing rapidly. China attracts the significant amount of money for the rising market. The VC scale in China is only behind the U. S. and Europe.

Chinese enterprises have become the majority firms of the global IPO activities, and the Chinese enterprises’ IPO has become the anchor source of the global stock markets. The relevant IPOs enjoy significant return, meaning that the enterprises can more easily raise capital from the stock market for the future development and expansion. Chinese companies were taking advantage of China’s economic boom.

2. The western VCs are taken by the domestic VCs gradually

The VC industry in China was first led by American and other foreign private equity firms. Where China’s information on market research may once have been neither available

nor reliable, the sophistication of such data is expanding, and most private equity investors are taking advantage of that information. Consequently, due diligence is already starting to look more like the Western template. Additionally, initial research on investment opportunity now goes much deeper than merely getting to know the promoter presenting the business concept. This trend is likely to continue, especially for high tech investments that are likely to be a major part of China’s future.

3. The environment of the VC in China needs further reform

In terms of development, the Asian private equity-venture capital industry is still relatively less developed compared with the U. S. and Europe. Generally, with a longer history of venture capital, the venture capital industry in Europe and the U. S. have well-developed mechanisms for monitoring and managing risks, as well as exercising governance. In Asia, the regulatory framework for the venture capital industry still lags behind, although governments have recently stepped up efforts to create the appropriate set of incentives and legislation to promote and regulate the venture capital industry.

The VC’s development in China is promising. However, there are four major challenges that China has to deal with gradually, under its transition from being a centrally-planned to a more capitalistic economy, and from being state owned to private owned in politics, including Legalization and Institutionalization, Information Transparency, Social Network, and Inelastic Foreign Exchange in Renminbi. The challenges favor domestic VCs development rather than foreign VCs, however, this also causes foreign investors to question the trustworthiness of some Chinese companies’ accounting and financial reporting practices.

Therefore, the environment of the venture capital in China needs further reform in the future.

4. ZhongGuanCun is the VC backed innovation center in China

The Chinese VC market remains almost equal weighted on the technology and non-tech sector due to its national policy and abundant inner market, the VC activities in ZGC show

the strong encouragement from the national policy on the TMT sector. ZGC took reference from Silicon Valley and Taiwan, and plays the active role on Chinese enterprises’ IPO activities, and contributes ninety percent to the GDP of the high-tech sector in Beijing City.

ZGC has become the largest e-commerce IPO cluster in China which is due to the government still strictly limits the number of foreigners from entering the internet and telecom industry in China. Local internet participants enjoy benefits from the protection.

However, the ZGC in Beijing usually invites no less than thirty percent of the total VC investment, which only made minor contribution to China’s GDP. It is clear that the accomplishment of ZGC has ample room for further improvement.

5. Experience of VCs in Taiwan helps the development of TMT industry in China

China’s VC investment targets both TMT and non-TMT industries due to encouraging government policy and also huge domestic demand, and is further reflected in the weighting of stock market capitalization. The characteristics provide a diversified opportunity for VC investment. For instance, Taiwanese VC used to be focused on technology investment in the early stage, while today they also look for opportunities in the expansion stage. Although this does not extend the investment targets, it enriches the portfolio and experience of the VC.

In addition, Taiwanese high-tech manufacturers contribute significantly to foreign trade-oriented economic activities in China. Taiwanese enterprises have successfully duplicated the cluster in mainland China, and consequently taken advantage of the international division that labor brings to enable technology upgrading of the domestic high-tech industry, namely by carrying out R&D and producing key components in Taiwan and thereafter carrying out the production and assembly in China.

6. The Asian stock markets get the benefit from the IPO of the Chinese enterprises

The stock markets in Asia are aggressively inviting SMEs for listing on the Small and Medium Board. The SZSE, TWSE and GTSM have provided SMEs more favorable

conditions for listing such as lower turnover and P/E ratio requirement. Meanwhile, Taiwan (TWSE and GTSM) has the advantage of acting as a technology- focused market, due to its tight relationship with Silicon Valley during economic development.

Today, the global stock markets are consolidating. The ASEAN Exchanges and the exchange merged in Tokyo and Osaka provide a clear example for the Chinese stock markets to integrate (in practice or the ASEAN Exchanges type by functionality) based on their characteristics and move toward a win-win outcome. This should be an influential combination, in the history of the global stock market, not only because the four exchanges’

cumulative market capitalization will be behind that of the NYSE, but because of the significance of the integration on the sectors specialization.

The illustrations above provide an idea for the integration on the Chinese stocks markets including China, Taiwan, Hong Kong and Singapore. The combination provides comprehensive options for the global enterprises (not only Chinese enterprises) for considering to go listing, and to be consequently closed to the Chinese market.