On September 8, 2010, the long-awaited State Council’s Resolutions on Accelerating Cultivation & Development of Strategic Emerging Industries was finally reviewed and approved on principle at an executive meeting of the State Council. The Resolutions clearly named energy savings & environmental protection, new generation information technologies, biotechnology, high-end equipment manufacturing, clean energy, new materials, and new energy automobiles as the seven strategic emerging industries and proposed overall development planning, which holds programmatic significance for China's development of strategic new industries. At present, China is in an important period when the country pushes ahead the transformation of economic growth mode and upgrading of industrial structure. Therefore, to accelerate efforts in fostering and developing strategic new industries is of great significance in enhancing China's independent development capacity and international competitiveness and contributing to sustainable economic and social development.
Increase Capital Input & Encourage VC/PE Investments
As far as China's development of strategic emerging industries is concerned, there is an urgent need to increase capital injections, as capital inadequacy constitutes one of the major bottlenecks. To this end, it was agreed at the State Council’s executive meeting that China will step up its fiscal, tax, and financial policy support, guiding and encouraging private capital investments. In addition, China will also establish special development funds for the strategic emerging industries and build a mechanism that would deliver steadily growing fiscal input. China will develop and improve preferential tax policies to support the development of strategic emerging industries. Financial institutions will be encouraged to increase credit support. Financing capabilities of China’s multi-level capital markets will be tapped. China will also step up its efforts to develop venture capital and equity investment funds in support of the emerging industries. This is undoubtedly major positive news to China’s booming VC / PE sector.
Venture capital and private equity investment institutions are often active on the forefront of industries and are keen on investing in emerging high-growth industries. With China’s strategic positioning of the emerging industries, VC / PE investment institutions have been increasing investments in this field. According to statistics compiled by Zero2IPO Research Center, there have been a total of 509 investment deals launched by venture capital and private equity institutions in strategic emerging industries such as information industry, clean energy, new materials, pharmaceuticals/health products, and bio-engineering since 2009, involving a total investment value of US$3.345 billion. In terms of quarterly investment pace, venture capital and private equity investment institutions have been accelerating their deployment in strategic emerging industries. Especially after three seminars on development of strategic emerging industries chaired by Premier Wen Jiabao in Q3’09, there had been a total of 105 investment deals in strategic emerging industries during Q4’09, involving an amount of US$699 million, up 25.0% and 85.6%, respectively, from the previous quarter. In H1’10, there were a total of 202 investment deals in strategic emerging industries, involving US$1.465 billion, accounting for 78.0% and 65.8% of that of entire 2009, respectively. (See Figure 1)
Guide Foreign Investments towards Strategic Emerging Industries
At the executive meeting, the State Council proposed to guide foreign investment towards strategic emerging industries. The previously released Several Opinions of the State Council on Further Improving the Work of Foreign Capital Utilization also made it clear that China will amend the Catalogue for the Guidance of Foreign Investment Industries, in an effort to expand opening-up fields and encourage foreign investments in strategic emerging industries such as high-end manufacturing, clean energy, as well as energy-saving and environmental protection. Viewed from the national strategic level, the central government will be more proactive in effectively encouraging "good foreign capitals" to enter China and encouraging foreign capitals to participate in reorganization and transformation as well as mergers and acquisitions of domestic companies through shareholding and M & As. China will also encourage qualified foreign invested companies to launch IPOs and issue corporate bonds in China.
It can be seen from statistics compiled by Zero2IPO Research Center that there are differences with characteristics of investment allocations in strategic emerging industries by local and foreign investment institutions, which are mainly due to exit mechanisms and different investment preferences. In 2009, both the number of investment deals and total investment value in strategic emerging industries by local VC / PE exceeded those by foreign counterparts in China. Specifically, there were 185 deals by local VC / PE, accounting for 60.3% of the total. The investment amount reached US$963 million, accounting for 51.3% of the total. By comparison, there were 114 deals by foreign VC / PE investment institutions, accounting for 37.1% of the total. The investment amount reached US$888 million, accounting for 47.3% of the total. Heading into 2010, China has adopted a clear stance in encouraging foreign investments. While the number of deals launched by local VC / PE is slightly higher than foreign counterparts, total investment value proves to be a different case. Foreign VC / PE investment institutions have achieved rapid expansion of investments in strategic emerging industries, with a total investment value reaching US$849 million, almost doubling local VC / PE’s investment value in the same field. (See Figure 2 and Figure 3)
Step up Efforts to Develop Detailed Rules on Industrial Planning
In China, the main keynote of vigorously promoting the development of strategic emerging industries has been made clear. However, many problems are still likely to emerge in the development process. In developing strategic emerging industries, some localities have focused on attracting investments and delivering short-term boost to GDP, which tend to result in similar layout and low-level competition in a new round of technology introductions. Some localities rushed to start and even positioned themselves as lower-end processing or assembly bases along the industrial chain of strategic emerging industries. Even if the concerned industries grow bigger, there is a still an absence of competitive capacity, and may even result in potential industrial security problems.
Because of the existing problems, it is particularly important to strengthen and regulate the development of strategic emerging industries in the future. The State Council has also stressed that organizational leadership and overall coordination on national level will be put in place. Specific development plans for strategic emerging industries will be rolled out, and the catalogue on guiding development of industries will be developed. In addition to identifying overall development goals, China will develop detailed technical direction and planning for each strategic emerging industry, with clear input goals. China will also develop overall planning for the organization and implementation of major projects.
