New preferential polices introduced by the Chinese government are expected to attract overseas venture capital to the country’s top technology zone, Zhongguancun, located in Beijing’s major university area.
Since 1981 Zhongguancun has been the center of China’s information technology industry and it was the birthplace of the country’s top IT companies, Legend Group, Founder Group and Stone Group. But it has never reached anything like what analysts consider to be its full potential because of the lack of access to private sector funding for private start-up companies.
The new policies will ignite the start-ups in Zhongguancun, which currently lack support from both the capital and development environments, said Zhao Chengzhi, computer professor at Beijing University which is one of the zone’s driving forces.
Compared with the development scale of industrial parks in Japan and Taiwan, we lag far behind and there is no way to parallel us with the US Silicon Valley, said Duan Yongji, president of Stone Electronics Group, China’s largest privately-owned IT company which is taking advantage of the new regulations to undergo a major restructuring prior to seeking an overseas listing. We are excited to see the government begin to tackle this chronic and sensitive systemic problem, which has been a critical issue for many non-governmental enterprises, he said.
The new measures include allowing university students to establish private IT companies; encouraging private IT firms to go public by listing on Hong Kong’s new Growth Enterprise Market of the Hong Kong Stock Exchange; giving tax breaks to software companies in Zhongguancun; allowing venture funds and companies to raise capital by means of private placement from corporations and individuals; establishing a new system of ownership in high-tech companies more in line with international norms.
Although Stone was founded without government funding and is run as an independent company, under existing regulations it has been indirectly owned by the state rather than its founders.
But an asset restructuring plan made possible by the new rules means 616 Stone staff are to take over ownership of the company via a new holding company, Beijing Stone Investment Corp, in which Duan will be the biggest shareholder with 7.2%. We will take off from a new operating platform in accordance with the practices of modern enterprise, he said.
Wu Jinglian, a senior economist at the top-level government Development Research Centre said the new rules were long overdue and time had been wasted and opportunities missed because private initiative had not been rewarded. He said Stone Group had suggested similar reforms in 1987. If that proposal, which was mostly similar to the current one, had been initiated 12 years ago, the subsequent IT development in Zhongguancun is also unimaginable, he said.
