One of the world's leading lenders in private equity and venture capital (VC), British-owned 3I Asia Pacific Plc, is planning to establish offices in Shanghai or Beijing to expand its Asian operation.

The announcement is the latest by overseas venture capitalists planning forays into China.

"We plan to establish offices in Shanghai or Beijing, or both," Anna Cheung, director of 3I Asia Pacific Plc, told China Daily.

She said the time frame for any expansion was between a year and 18 months.

3I Asia currently has investments in three mainland Chinese companies.

"We are now actively in touch with several others and are talking seriously with three," added Cheung, who refused to divulge further details.

She said other companies were being scrutinized for solid management, prospects and leadership, "regardless of their business scope and development stages."

3I Asia established offices in Hong Kong in 2001 its second Asian operation tasked with managing business in North Asia.

The first 3I Asian office was set up in Singapore in 1997, which remains in charge of South Asian business.

Cheung said she was not concerned over the recent bearish performance among newly launched small and medium companies on the Shenzhen stock exchange because 31 Asia did not use it as an exit point.

"We currently plan to sell the three Chinese companies we have invested in when the time is ripe," she said, adding "and even if we choose to list them, we prefer doing so on overseas stock exchanges."

She said 3I Asia does not pursue initial public offering for most of its investments.

VCs normally invest in a company at start-up stage and exit by selling or listing it after the company matures.

China's VC market, which Cheung described as "great," has attracted an increasing number of overseas players in recent months as the technology sector shows signs of warming up and private firms remain thirsty for funds.

According to Zero2ipo.com Ltd, a professional VC market research company in Beijing, the total amount of venture capital reached US$438 million in the first half of this year - a rise of 31.86 per cent over the same period last year.

Among the total investment, about 85 percent of the total VC investment was from overseas players, a figure which demonstrates their great competitive advantage over local players.

"Local private firms, particularly in the IT sector, are cash-starved," said Zhai Yuchun, a manager of an investment firm.

Venture capital is a good option for such set ups compared with bank loans and public funds, which usually go to large-scale enterprises.

It is against this background that overseas venture capitalists are increasingly keen to tip their toes into the Chinese market, he said.

Jerusalem Venture Partners (JVP), a leading Israeli VC firm, also wants to set up its first office in China, it declared last month.

(China Daily August 20, 2004)