Asia watch, Dec. 11, 2006

PE investments in China reach record highs

Private equity investment activity in China set records this year, according to a research report released last week, as foreign investors have rushed to the world’s fourth largest economy.

Local and international venture funds invested $1.7 billion in China from January to November, a record amount and a nearly 60% increase over all of 2005, according to Zero2IPO, a venture capital research and consultantcy firm.

Foreign investors are still the major players in the market, said Gavin Ni, Zero2IPO’s founder and CEO. He said that foreign funds accounted for more than 80% of such transactions so far this year and the trend was expected to continue next year.

Meanwhile, private equity firms have invested $11.8 billion in 111 projects in China in the first 11 months of the year, also a record.

In all, 68 private equity firms have made investments in China from January to November, making China the most active private equity sector in Asia excluding Japan, according to the Zero2IPO report.

Zero2IPO noted in its report that exits are difficult, particularly in China because private equity-owned companies can’t go public on China’s domestic stock market. Moreover, the Chinese government is still mulling new rules for how to regulate private equity within its borders.

However, according to China press reports last week, several ministries and commissions in China are planning in the next few weeks to unveil new policies covering taxation and VC regulations. JLM Pacific Epoch news service reported that the new policies will include encouraging insurance and securities companies to set up venture capital operations, adjusting the Shenzhen Stock Exchange board and adjusting regulations on foreign investment.

Biotech company raises $52M

Cathay Industrial Biotech Ltd.

, a Shanghai, China-based developer of new molecules for use in nylons, fragrances, anti-corrosive materials and automobile powder coating, has raised $52 million in a Series B round. Backers included Goldman Sachs, Gramineae Holdings Co., GM Investment Co., New Horizon Evergreen Investment Co., BioVeda China, HBM BioVentures and Pudong Science and Technology Investments. The company raised $26 million in a Series A round earlier this year.

VC pulls in more immigrants

Immigrants founded one out of four U.S. venture-backed companies that have gone public in the past 15 years, according to a National Venture Capital Association study. Plus, nearly half of all privately held venture-backed startups were founded by immigrants, with Taiwain, India and Israel the top three countries of origin.More than two-thirds of the immigrant entrepreneurs surveyed said current U.S. immigration policy is making it harder to start a business here. One-third said the lack of available visas has been a factor in their decision to add more workers overseas instead of in the United States.

“A key lesson of the study is the importance of maintaining a more open, legal immigration system,” said Stuart Anderson, co-author of the study and executive director of the National Foundation for American Policy.