Foreign Venture Firms Hit China Wall

Wall Street Journal ^ | June 29, 2005 | REBECCA BUCKMAN

[Ooh-Ah]

HONG KONG -- At a time when big Chinese companies are trying to scoop up U.S. assets, new Chinese regulations are having the unintended consequence of making it tougher for foreign firms to make venture-capital investments in the country.

The regulations, quietly enacted this year by China's State Administration of Foreign Exchange, have been the target of intense lobbying by venture capitalists and lawyers in China in the past two months. The investors want officials to clarify how foreign firms can make legitimate investments in Chinese start-up businesses under the new rules, which require new disclosures and approvals for Chinese citizens who wish to move company assets offshore.

In China, most venture investments are made through offshore entities because it is difficult for venture capitalists to structure deals and take companies public on overseas exchanges, under China's less market-oriented corporate laws.

The government -- which confirms it is working with venture capitalists to solve the problem -- enacted the rules to tackle problems such as offshore money laundering and tax evasion. Beijing also hoped to curb capital outflows adversely affecting the country's overall balance of payments, Chinese officials say.

The rules also have had the effect of curbing venture-capital deals in China.

[Ooh-Ah]

unintended consequence ? Sure!

[Ooh-Ah]

See also:
China Slows Ambitious Plans For 3G Networks

[BaBaStooey]

What did they hit it with? A sledgehammer? A wrecking ball? Which wall? It wasn't the Great Wall of China, was it?

[Mike Darancette]

China does not care for our foreign capital. The government wants to control the means of production. They are Communists don't you know.

[brownsfan]

"The government wants to control the means of production. They are Communists don't you know."

Shhhhhhh! Yes, we know they are communists, but we are gleefully making money hand over fist sending our manufacturing over to China! Don't spoil the party by pointing out their communists and one day could nationalize the factories that we build there! We don't want to hear that.