On Saturday China's first industry investment fund of six billion yuan (US$770 million) was inaugurated in Tianjin, a north China economic center.

It's anticipated the Bohai Industry Investment Fund (BIIF) will reach 20 billion yuan within 15 years and provide easy access to funding for small businesses and firms in the modern, manufacturing and high-technology fields.

The first phase of six billion yuan was jointly funded by six domestic financial institutions and companies. They are the National Council for Social Security Fund of China, BOC International (China) Limited, TEDA International Holding Co. Ltd., the Postal Savings Bank of China, China Life Insurance Company and Tianjin-based Jinneng Investment Share-holding Co. Ltd. They invested one billion yuan each.

The BIIF will initially finance mainly innovative manufacturing enterprises and transportation and energy projects in the Binhai New Area of Tianjin and other areas around the Bohai Bay including Beijing, Tianjin, Shandong and Liaoning provinces.

The Binhai New Area is a national pilot reform base listed in the country's development plan for 2006 and 2010. The government is endeavoring to turn the area into its third economic base after Shenzhen and Shanghai's Pudong.

Economists and experts say the establishment of the BIIF indicated that China was stepping up the development of industrial investment funds and exploring new channels for direct fund raising.

Currently, the proportion of direct financing stands at less than 10 percent and is done through a handful of channels including the stock market, issuance of corporate bonds and short-term fund-raising bonds. Many enterprises have to fight for bank loans.

With money raised indirectly enterprises would suffer a high ratio of liabilities, heavy financial burdens, low innovation capabilities and weak abilities to hedge risks, said Dai Xianglong, city mayor of Tianjin.

The BIIF was a low-cost but efficient channel for fund-raising for firms that face difficulties in securing bank loans, say experts.

Industry investment funds would also diversify investment channels for Chinese citizens whose combined bank savings totaled 1.4 trillion yuan and who could only invest in the stock market and buy state treasury bonds, said Meng Hao, head of the International Financial Research Center under the Tianjin University of Finance and Economics.

More industry investment funds were expected to be launched, said Dai, adding they would drive the drafting of Chinese law in this field. Other industrial funds including energy industry investment funds have applied for licenses.

Dai said the BIIF would be included in the scheme of comprehensive reforms in the Binhai New Area and would be further developed.

The BIIF Management Company, with a registered capital of 200 million yuan, was also inaugurated on Saturday to oversee the use of the Bohai fund. The National Development and Reform Commission gave the go-ahead for the establishment of the fund in December last year.

(Xinhua News Agency December 31, 2006)