Lur­ing VC firms back for start-ups ur­gent in trade war

Global Times US Edition - - BIZCOMMENT - By Hu Wei­jia

Chi­nese ven­ture cap­i­tal (VC) in­vest­ment in US biotech com­pa­nies fell by more than 50 per­cent in the first half of the year, the Fi­nan­cial Times re­ported Tues­day, as Chi­nese in­vest­ment faces grow­ing scru­tiny and hos­til­ity in the US.

China is the world’s se­cond largest VC mar­ket, with more than 3,500 VC en­ter­prises man­ag­ing to­tal as­sets worth nearly 2 tril­lion yuan ($291 bil­lion), ac­cord­ing to the Na­tional Devel­op­ment and Re­form Com­mis­sion, China’s top eco­nomic plan­ner. Chi­nese VC funds have be­come an im­por­tant sup­port­ing force for tech start-ups.

Al­though China and the US have agreed to restart trade con­sul­ta­tions on equal terms, trade war fears raised by the US have not been com­pletely set­tled. The US dis­trust of Chi­nese in­vest­ment is deeply em­bed­ded in Wash­ing­ton’s eco­nomic pol­icy.

This will last for some time in the fu­ture. As the US tight­ens na­tional se­cu­rity re­views, Chi­nese VC com­pa­nies have to turn their gaze back to do­mes­tic start-ups. This is not nec­es­sar­ily a bad thing, if China can seize this op­por­tu­nity to pro­mote sci­en­tific in­no­va­tion and en­cour­age vi­tal­ity in the econ­omy.

There are a lot of hot tech start-ups in China right now. The trade war has made it in­creas­ingly ur­gent for China to lure VC back to sup­port tech start-ups. China must pur­sue a path of in­de­pen­dent in­no­va­tion and mo­bi­lize eco­nomic re­sources as much as pos­si­ble.

China went through a years­long surge in VC in­vest­ment, but in 2019, some sta­tis­tics showed VC deals plunged in terms of vol­ume and value in the first half of this year. China’s VC in­dus­try is ris­ing fast but the mar­ket is still im­ma­ture com­pared to those in the US and the UK.

For in­stance, there are no laws that re­quire start-ups to dis­close some de­tailed in­for­ma­tion about the money they have raised. The prob­lem of in­for­ma­tion asym­me­try makes VC firms anx­ious to achieve quick suc­cess and gain in­stant ben­e­fits.

China needs to im­prove the busi­ness en­vi­ron­ment for VC firms with mea­sures such as es­tab­lish­ing an ef­fec­tive exit mech­a­nism in the in­dus­try, oth­er­wise it will prob­a­bly miss the op­por­tu­nity to at­tract VC in­vest­ment back. The au­thor is a reporter with the Global Times. bi­zopin­[email protected] glob­al­times.com.cn

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