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September 26, 2009

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Home » Business » Economy

City increases effort to attract funding to power 'innovation-industry' strategy

SHANGHAI is stepping up efforts to encourage private capital to help finance development of companies involved in clean energy, new materials, biomedicines and information technology, city government officials said yesterday.

The effort will be backed by 10 billion yuan (US$1.47 billion) in government funding that will provide seed investment, research subsidies and low-interest bank loans to support start-up firms in the target industries, according to the Shanghai Economic and Information Technology Development Commission.

It's all part of the city's strategic development plan to shift the focus of the local industry mix from manufacturing to high tech.

"It will help the city upgrade its industry structure and improve its competitive ability internationally," said Tu Guangshao, a Shanghai vice mayor. "It's also a type of finance innovation, in line with the plan to turn the city into an international financial center by 2020."

The new effort builds on an existing program to attract capital for high-tech development. Equity investment enterprises have poured 24.9 billion yuan into 69 city-level projects so far this year, the commission said, without providing comparison figures. Of that, the government has provided 320 million yuan.

In June, Shanghai became the first city on the Chinese mainland to allow overseas equity investment firms. Several private equity firms, including Hong Kong-based First Eastern Investment Group, have registered for a chance to do business here.

"With China's Growth Enterprise Market, private equity and venture capital firms now have better exit channels," said Wang Chunqi, vice president of First Eastern, which operates a 5 billion yuan fund in the domestic market and is seeking opportunities in Shanghai.

The first 10 companies were recently approved to trade on the Nasdaq-like GEM in Shenzhen, which is scheduled to begin operation in the near future. The average share price of the companies planning to list there is 55 times their 2008 earnings, compared with an average price-earnings ratio of 36 for initial public offerings on the country's main board.

Among the first batch of 94 firms to apply for listing on the GEM, 38, or more than one-quarter, are invested by private equity or venture capital firms, according to Zero2IPO, a Beijing-based investment consulting firm.

Shanghai is fertile ground for the growth of "innovation industry" start-ups. It is home to about 10 high-tech industry zones, including Zhangjiang High-Tech Industrial Park in the Pudong New Area.

Companies located in these zones are running businesses ranging from electric car batteries to laser TVs to digitized X-rays.


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