RMB funds overtake China's VC market

In 2008, RMB-denominated funds raised RMB 264bn to invest in China, up 347 percent from from the prior year.

Local currency-denominated funds now constitute the majority of venture capital funds raised in China. In 2008, the number of RMB-denominated venture capital funds accounted for 63 percent of total venture capital funds raised, a 20 percent increase from 2007.

The number of venture capital funds in China has increased over the last year, as has the number of funds denominated in the local currency. There were 91 new venture capital funds in China in 2008, up 57 percent from 2007. Of these funds, 58 were denominated in the local currency and 33 were US dollar-denominated, according to a study by Chinese data provider EZCapital & HolyZone.

The rise in the number of venture capital funds denominated in the local currency was primarily due to the Chinese government disclosing new statutes and codes regulating the Chinese venture capital market, the study said. As an example, it cited the the establishment of the Growth Enterprises Board, a trading board for startup companies.

At an average size of RMB672 million ($98 million; €78 million), RMB funds were approximately 10 times smaller than US-denominated funds, which had an average size of RMB6.8 billion.

The largest RMB funds raised in 2008 included the RMB 5 billion Overseas Chinese Investment Fund, the RMB 4.7 billion Tianjin Binhai New Area Venture Capital Guiding Fund and a RMB 5 billion fund raised by Hony Capital, a Chinese private equity firm.

The first quarter of 2009 has seen more RMB-denominated funds being raised as local governments set up venture capital funds alongside domestic private equity firms.

In January, the Beijing Zhongke Fangshan Venture Capital Fund, which is backed by the Beijing municipal government, reportedly raised RMB500 million. In the same month, China-focused private equity firm New Horizon Capital closed its first RMB-denominated fund on RMB1 billion.