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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (3604)	10/31/2004 12:48:01 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

The payoff is coming at last for investors in China By Matt Marshall Knight Ridder Newspapers Venture capitalists across Silicon Valley are falling for China. For years, if not decades, entrepreneurs have dreamed of making it in China, salivating at the prospect of more than a billion people and an economy growing at 9 percent a year. But for the most part, those dreams have so far remained just that — dreams, with few and limited cases of success. Now, new developments are drawing the eyes of venture capitalists, and they see money. A raft of recent successful initial public offerings of Chinese companies show foreign investors finally have a way to recoup profits from investments there. The companies, which are listed on Nasdaq composite index or Hong Kong stock exchanges, are producing gains some say could make U.S. ventures pale in comparison. Take SMIC, the big Shanghai semiconductor company that went public in March. It grew its revenues to $1 billion within four years, probably one of the fastest-growing companies ever, says Dick Kramlich, partner at Menlo Park, Calif.'s New Enterprise Associates. He invested more money into SMIC — $120 million — than any other startup in his 25 years of investing. Two years later, he has already earned a paper profit. Stories like SMIC are sparking a veritable race among investors to get to China, despite the long list of risks and caveats involved with doing business or investing there. In June, Silicon Valley Bank took 25 California venture capitalists to China to meet with local politicians and entrepreneurs. Many had never been there before. On their heels came 200 Israeli venture capitalists on a similar mission. The interest is already translating into action. Private-equity investments into China companies grew to $1.6 billion last year, up from $418 million in 2002. And this year should see still more. Last year, 172 venture firms operated in China, up from 38 in 2002, according to the Asia Venture Capital Journal. Several other forces have converged to push China into the venture-capitalist limelight. China's income per capita has risen sharply over the past decade, giving consumers real purchasing power. Half the population has phones, compared with only 1 percent in 1990. Many U.S.-educated Chinese entrepreneurs and engineers have returned home to China, bringing back valuable management experience. Finally, the massive growth of foreign direct investment in China from corporations is helping spur China's economy. About $1 billion in capital is invested in China per week, according to McKinsey & Co. Other venture capitalists say they want to go, too, but fear huge risks. Arcane regulations, nuances of local custom, loose accounting and legal standards and fickle government policy pronouncements all make for hazardous conditions. Chinese banks are burdened with debt, and electricity and transportation services strain to keep up. U.S. venture firms are hampered because it takes time, energy and luck to hire the right Chinese speakers who can manage things on the ground from thousands of miles away. "There are a lot of fools rushing in right now," says Len Baker, partner with Sutter Hill Ventures, declining to name names. The recent activity itself is creating bubble-like conditions there, many warn. Foreign investors, who make up about 90 percent of the venture-capitalist investments, are bidding up the price of investing in private companies — offering more money for the same amount of ownership stake. That pushes up expectations, and many companies are destined to miss the mark, experienced investors agree. China's government is trying to engineer a "soft landing." Copyright © 2004 The Seattle Times Company seattletimes.nwsource.com