Providing avenues for small- to medium-sized Chinese enterprises to raise capital for growth was one of the most important topics discussed during the National Finance Meeting in early 2007. While domestic banks are offering various loan products to small- and medium-sized businesses, we also need to attract and utilize foreign capital, particularly private equity funds. The China International Private Equity Forum provides a platform for international capital raising and further evidence of the importance being placed on financial reform.

Private business enterprises can grow rapidly and need capital. However, the avenues for obtaining domestic and international capital are limited. Statistics show that loans made to small and medium sized enterprises only account for approximately 10% of total loans nationwide. The traditional financing channels cannot meet the demands from these enterprises. Therefore, resolving the financing difficulties for small and medium sized companies is one of the urgent issues in the financial industry in China. We should encourage domestic banks to provide more financing products and services to small and medium-sized businesses and also leverage sources of foreign capital.

This Private Equity Forum held in Tianjin aims to bring global private equity funds to Chinese enterprises. It is a great experiment in creating a new financing avenue sponsored by the China M&A conference (All China Federation of Industry and Commerce) supported by the Tianjin Municipal People’s Government. I believe that the Forum will bring new opportunities for many Chinese enterprises, accelerate financial innovation, and develop additional private financing channels.

Small and medium-sized private equity funds target strategic investments instead of a controlling stake in a company. They would like to grow with the private enterprise and take returns through profits. It is a win-win situation for both sides.

We hope the Forum will provide not only a platform of communication and cooperation for outstanding enterprises and venture investors, but also a new channel for private equity investment and finance in China.

“Speed Dating” and “Capital Connection” are internationally known financing models. The Organizing Committee helps prescreen and match the private companies and potential investors. During the Forum, both parties have the opportunity to communicate and network. These models can reduce financing costs and improve financing success rates significantly.

Private equity helps small and medium sized enterprises grow in every stage. It also provides financial, informational and managerial support. It is reported that in 2006, capital raised through private equity exceeded $360 billion US dollars. More than half of the funds came from and invested in North America and a quarter of the funds came from and invested in Europe. Increasingly, private equity investments are starting to target the booming Asian market.

The All-China Federation of Industry & Commerce focuses on serving small to medium-sized enterprises. This Forum is a significant experiment to explore new financing channels for these enterprises. The All-China Federation of Industry & Commerce promotes the establishment of community banks. Community banks have the best knowledge about local enterprises. These banks should have stable loan operations and lower non-performing assets. In addition, establishing investment guarantee companies and industry associations can create a business chain for small to medium-sized enterprises to use in borrowing capital. Small to medium-sized enterprises and micro-enterprises can obtain recommendations from the industry associations and then send the recommendations to the investment guarantee company for valuation. Other companies in the same industry can also provide guarantees. The community banks will lend the funds. This complete lending chain can solve the difficulties small to medium-sized enterprises find in obtaining capital. SMEs cannot depend on large commercial banks.

Another suggestion is to establish technology banks in the high-tech development zones nationwide. Technology banks can properly evaluate patents, inventions and copyrights. These banks can then lend the fund to companies based on their appraisal. Currently, national funds, mainly used in research and development projects, are not efficient. We believe a better choice is to put funds in technology banks and operate capital through the financial system. Investment projects are submitted by enterprises, and technology banks can select the best projects based on market outlooks and the technical progress of these projects. Government can award funds to enterprises with outstanding research achievements in order to encourage continuous innovation. Although some enterprises may fail, it is still worth experimenting with this new channel of financing. We suggest establishing technology banks in high-tech development zones. In Silicon Valley, 50% of enterprises supported by venture capitals, borrowed loans from technology banks first. These enterprises used the capital to fuel growth. During the last stage financing, they either used public offerings or commercial bank loans to satisfy their capital needs.