Although venture capital investment in China rose to a record
high in 2006, the spotlight seems to have shifted from the Internet
sector to the so-called traditional industries.
In 2006, venture capitalists invested US$1.78 billion in Chinese
companies, up 52.1 percent year-on-year, according to Zero2IPO, a
consulting firm focused on the venture capital and private equity
sectors. The record high investment has made China the world's No 2
destination for venture capital after the United States.
Despite venture capitalists' enthusiasm for China, their
interest in the Internet sector appears to be waning. According to
Zero2IPO, venture capital investment in the nation's IT industry,
mainly represented by Internet companies, accounted for only 59.6
percent of the nation's total in 2006, compared with 66.2 percent
in 2005. Industry insiders said the decline was partly due to newly
discovered investment opportunities in industries such as education
and new energy.
"Every investor wants to find the next Suntech now, although few
of them know about the alternative energy sector," said Don Ye, CEO
of the China Environment Fund.
Wuxi-based solar power equipment maker Suntech went public on
the NASDAQ in 2006, triggering a craze for China's new energy
sector. Meanwhile, the NASDAQ debuts of Home Inn, a Chinese budget
hotel chain, and New Oriental, a Beijing-headquartered English
training school, drew venture capitalists to China's hospitality
and education sectors.
"The enthusiasm for traditional industries is partly due to
limited investment opportunities in Internet companies," said
Garvin Ni, Zero2IPO's CEO. "In the past, venture capital firms have
dropped hefty stakes in China's dotcom companies."
Web 2.0 companies appear to have been the only buzzword for
China's Internet sector in 2006, as investors tried to find Chinese
versions of Myspace and YouTube. In 2006, venture capital giants
such as IDG VC and SAIF invested in BlogCN.com and Bokee.com, two
leading blog service providers. Online video websites such as
Wangyou.com and Tudoo.com also found backing from venture capital
investment.
(China Daily January 24, 2007)