New IPR Policies Yield VC Investment in China


Posted on July 30, 2010 at 9:07 PM

Recently, the Chinese government has been creating new enforcement methods for their Intellectual Property Rights policies. Since joining the World Trade Organization in 2001, China has made a great effort to create policies for IPR that more closely resemble those of the most developed countries. The amended IP regulations in China are in complete accordance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. The TRIPS agreement was negotiated in 1994 and is the first ever attempt at introducing IPR regulations in the international trading system. Because China has adopted the TRIPS regulations into their domestic IPR laws, the Chinese economy is better able to align its IPR structures with other WTO countries. As a result, venture capital investment in China is on the rise. Investors see more possibilities in the Chinese market as the laws create greater protections for intellectual property.

Premier Wen Jiaobao explained in a November 2009 speech that emerging industries must benefit from national policies. These emerging industries, marked by stable growth and market demand, are economically and technologically beneficial. Moreover, the seven emerging industries identified by Wen are: new material, life science, new energy, geological prospecting technologies, information networking and ocean and space development. Each industry is expected to have the opportunity for developmental synergies in the future. The NDRC and the Ministry of Finance have announced a development plan which will include the ability of state governments to leverage funds of local governments and non-government investors in regard to the seven emerging industries. There is even a possibility of a joint VC fund to be established by these three entities. The VC will be managed by a professional management company with the state having no more than 20 percent and non-governmental funds having at least 60 percent.

The new plans to develop emerging industries have attracted many foreign and domestic Chinese funds looking to establish joint VC funds with local governments. VC funding in China has thus grown rapidly. In 2009, VC funds in China made nearly 300 renminbi-denominated investments valued at €1.05 billion. Following the interim measures for establishing investment funds in Beijing set in effect January 1, 2010, global PE giant Carlyle Group plans to join China's largest non-state-owned conglomerate, Fosun Group to form a €74.9 million Yuan-denominated PE fund. An estimated 13 of the 24 VC/PE investments in China in January 2010 were in emerging industries. The new IPR provisions are having a positive effect on VC investment in China and continue to fund projects and development in emerging industries.

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