The Chinese government has set up a special fund of 100 million yuan (about US$12.8 million) to encourage venture capital companies to invest in technology-based small and medium-sized enterprises (SMEs).

Unlike past investment which has been directly injected into technology-based SMEs, the fund, jointly offered by the Ministry of Finance and Ministry of Science and Technology, will, for the first time, target venture capital companies, venture capital management enterprises and service agencies capable of investing in a burgeoning number of technology-based SMEs.

According to provisional regulations on the management of the fund, the government departments can use part of the fund to purchase shares in venture capital companies that invest in such SMEs or directly invest in SMEs together with venture capital.

The fund will also subsidize venture capital who invests in those SMEs that are still in their pioneering stages to reduce risks.

Technology-based SMEs refer to those whose business development mainly hinges upon new technical innovations which are relatively uncertain in terms of application and market prospects. As a result, banks and venture capitals tend to be cautious when it comes to invest in them.

A third-party institution will be entrusted to audit and evaluate the performance of the fund, according to the ministries.

Nearly three decades after China's economic reform and opening-up, China has changed its economic growth policies from emphasizing quantity to quality and mapped out a number of polices to facilitate technical innovation.

The government has channeled a total of four billion yuan (about US$512.8 million) so far from 1999 to technology-based enterprises. In February, the Ministry of Finance and the State Administration of Taxation have decided to grant a rebate to the taxable income of venture capital investing in high-tech SMEs.

(Xinhua News Agency July 17, 2007)