Date: 05/21/2000 Page: 3 Author: XIAO MIN, Business Weekly staff

China will accelerate the development of industrial and venture capital funds to promote structural reform in domestic enterprises and to meet the funding demands of unlisted firms, officials said.

The government is designing regulations on industrial funds, which are expected to ensure a more commercialized business operation, said Cao Wenlian, director of the Financial Division of the Department of Economic Policy Co-ordination of the State Development Planning Commission.

Industrial funds, an important financial resource complementary to bank and securities investment funds, mainly targets promising firms that have not been listed on a stock market and which provides them with more development funds, experts said.

China has set up many direct investment funds abroad since the mid-1980s. But there is no such fund within the country at present.

Cao said the growth of the industry will prop up the industrial reorganization and technological renovation of domestic firms. It will also grant more support for high-tech firms, which often find it hard to get loans from banks.

However, a close relation with the government, the main funds supplier, has raised concerns about the possibility of low efficiencies and even corruption in funds management, according to Wang Dayong, an official with China Development Bank.

There are also worries of potential biases towards private firms by fund managers because there are more medium and big State-owned enterprises hungry for funds, he said.

To avoid these kinds of problems, "the business will strictly follow the industrial policies," said Cao. It ensures investment input to the most promising sectors and companies.

"Though the funding sources mainly come from the government, the business will be operated in a commercial way," Cao said.

China is considering allowing commercial banks and insurance companies to invest in industrial funds.

Foreign investors may also be allowed to enter the business, Cao said, though he did not give a timetable for that.

Compared to industrial funds, venture capital investors, who face more risks in making investment decisions, are certainly more commercially minded.

With the rapid development of the high-tech industry, some local authorities and domestic companies have already dipped into the venture capital business.

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