New measures to fill VC market gap

China will unveil a series of new measures to promote the development of the country’s venture capital sector, recognizing its key role in driving technological innovation, industrial upgrading and high-quality economic growth, the State Council, China’s cabinet, said on Wednesday.

According to a statement by the State Council chaired by Premier Li Qiang, a package of reforms will be implemented to address issues across the entire lifecycle of VC investments, from fundraising and financing to post-investment management and capital exit.

The decision comes after China’s venture capital market plunged in the first half of the year, according to data from First New Voice, a Beijing-based research institute.

The institute said the total amount of investment across the VC market fell by about 30 percent year-over-year, while the number of investment deals and total capital invested fell by almost 40 percent.

What’s more, according to RimeData, a data services provider dedicated to the VC market, 2,063 new private equity and VC funds were launched in the first six months of the year, down 47.5% from the same period last year. The total registered capital raised by these new funds was 664.9 billion yuan ($93.87 billion), down 28.3% year-on-year.

The meeting emphasized that special efforts will be made to support domestic and overseas public listings of venture-backed technology enterprises and create solid secondary markets for equity transfers and mergers and acquisitions.

Since the new offshore listing rules came into effect on March 31 last year, the China Securities Regulatory Commission has received applications from 158 mainland companies as of mid-June, including 85 that listed on the Hong Kong stock exchange and 73 in the United States.

The meeting adopted steps to promote the pilot implementation of in-kind equity distribution, and also encouraged private capital to create market-oriented merger funds and secondary VC funds, all aimed at supporting a virtuous cycle in the VC ecosystem.

Policymakers will also work to transform state capital into a patient investment force that is willing to forgo short-term profits in favor of sustainable growth and long-term value creation, the meeting said.

The government meeting also called for steps to improve policies and mechanisms for the deployment of state capital, performance evaluation, error tolerance and exit procedures.