Venture capitalists have shown great enthusiasm in the Chinese market in 2004 and made unprecedented investments with the encouragement of many successful exits from invested projects, said industrial executives and analysts yesterday.

"This year is a turning point for the venture capital (VC) industry," said Zhang Jingan, secretary general of the Ministry of Science and Technology, a main advocate in the Chinese Government for VC development.

He said at the Zero2ipo China Venture Capital Forum in Beijing yesterday that with the successful initial public offerings (IPOs) of Shanghai-based Chinese chipmaker Semiconductor Manufacturing International Corp (SMIC) and the country's number one online game developer Shanda Interactive Entertainment, many VC firms were encouraged by successful exits or good returns from invested projects and began to spend more money.

According to Zero2ipo, a Beijing-based professional VC industry research company, VC companies invested US$1.27 billion in China this year, compared with last year's US$992 million.

"If we do not include the US$600 million VC investment into SMIC last year, we can see this year's investment more than doubled and is a very encouraging figure," said Wayne Tsou, head of the Carlyle Asia Venture group.

He said in the past six years foreign VC firms just tested the water and tried to get rooted in China but are now ready to accelerate VC growth with the improving quality of startups and the sustained growth of the Chinese economy.

Garvin Ni, president of Zero2ipo, said foreign VC firms continued to be the dominant force in the industry and invested more than US$800 million this year, while domestic VC companies only invested US$400 million.

The rest was invested by foreign and domestic firms jointly.

Integrated circuit design attracted the most focus with US$353 million invested into over 30 semiconductor design houses.

It was followed by tele-communications companies, traditional manufacturing, chemi-cal, agricultural, and consumer businesses.

Shanghai, Beijing and Shenzhen remained the hottest areas for VC investment, with the former two attracting 70 per cent of the total investment volume.

Ni with Zero2ipo pointed out the successes and acquisitions of some invested projects provided strong stimuli to VC firms to make or increase investments.

According to Ni's company, 24 VC-invested companies made IPOs in 2004 and raised US$4.3 billion.

Acquisition deals such as the purchase of Chinese customer-to-customer website Joyo.com by the US giant Amazon.com also gave many VC firms an exit.

The value of exited venture capital reached US$800 million this year, in contrast to US$210 million in 2003.

He said with the steady growth of the Chinese economy and an increasing number of Chinese companies poised to make public listings, China is set to become the second largest VC market in the world in about three years.

Ni predicted the enthusiasm of foreign VC firms will continue to rise in 2005, as many are expected to enter the market in January and February.

The possible IPOs of some Chinese firms including the e-commerce firm Alibaba.com will bring more exit opportunities to venture capitalists.

(China Daily December 17, 2004)