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China Outlook Q. What is the significance of China entering the World Trade Organization (WTO)? Governmental Focus Q. What is the Chinese government doing to encourage startup growth? Q. Are there any public companies in China today? Economic Outlook Q. What is the economic outlook for the China stock market? Q. What is the ratio of China’s stock market cap to gross domestic product (GDP) versus that of the United States? Q. How did the China stock market do last year? Q. Are there wealthy individuals in China? Foreign Investments Q. Is there any foreign capital going into China? Q. Are there any foreign investors in China today? Q. Who are some of the U.S.-based companies that have offices in China? Q. Are there any tax breaks for U.S. companies opening operations in China? Q. Can I get my investments out of China? Q. What are the biggest hurdles to overcome? Q. What are some of the mistakes U.S. companies make in entering China? Industry Outlook Q. What is the IT outlook? Q. How many Internet users are in China today? Q. What is the projected number of Internet users? Q. What is the number of mobile users in China? DragonVenture’s Areas of Interest Q. What areas will DragonVenture focus its resources on? Q. Why did DragonVenture select Beijing to open an office? Q. Why DragonVenture? |
| China Outlook Q. What is the significance of China entering the World Trade Organization (WTO)? A. The implications of China’s entry into the WTO are multifaceted. It will open doors to a more regulated business environment for foreigners wishing to enter China. It will also allow more goods and services from China to flow into other countries. China’s accession to the WTO is a historic event and without doubt, China is sure to play a major role in the future of world trade. Entering the WTO will finally help remove many business practice obstacles that as of today remain a major hindrance for foreign and domestic businesses alike. 
Governmental Focus Q. What is the Chinese government doing to encourage startup growth? A. The Chinese government endorses the growth and adoption of high technology, as there are 29 government-endorsed incubation sites in the country representing several thousand startups. There are already six technology parks in the Beijing district of Zhongguancun (ZGC), one of which is the Haidian Science Park where DragonVenture has an office. ZGC has plans to build 15 additional science parks. Working closely with industries and relevant organizations, the government developed different types of tax-exemptions to help new comers develop physical, technological, and human infrastructures in an effort to get their startups up and running quickly. The goal of these tax benefits is to encourage and support applied research, technological development and technology transfer for both local and overseas industries.
Q. Are there any public companies in China today? A. Ninety percent of publicly traded companies in China are SOEs (state-owned enterprises). Historically, SOE’s in China were not designed to be profit-driven. However, the policy makers in China realize that, in order to compete in a market driven economy, these SOE’s must be privatized. As such, there are roughly 1100 SOEs that are now publicly traded.
Economic Outlook Q. What is the economic outlook for the China stock market? A. China’s stock market capitalization will surpass that of Japan’s within 10 years, according to Salomon Smith Barney. At that point, China will rank as the world’s second largest country in stock market capitalization.
Q. What is the ratio of China’s stock market cap to gross domestic product (GDP) versus that of the United States? A. In terms of key economic indicators, China in 1999 had a GDP of US$ 4,515.9 billion, a population of 1250.46 million and a GDP per capita of US$ 3,611 million. In terms of global rankings, this placed China 2 out of 191 in terms of GDP, one out of 191 countries in terms of population, and 91 out of 191 countries in terms of GDP per capita. The ratio of China’s stock market capitalization to GDP rose from less than 1 percent in 1990 to 51 percent in 2000. China GDP during this period rose 173 percent. In comparison, U.S. GDP grew 42 percent over the same period, and U.S. market capitalization to GDP ratio rose from 49 percent in 1990 to 123 percent in 2000.
Q. How did the China stock market do last year? A. The China stock market rose over 50 percent, while most of the world’s markets were declining.
Q. Are there wealthy individuals in China? A. According to very conservative estimates by the Chinese government, the private sector and individuals in China have now amassed close to US$1 trillion in liquid assets.
Foreign Investments Q. Is there any foreign capital going into China? A. Yes, from 1996 to 2000, China absorbed some $213 billion in foreign direct investments, which exceeded that of any other developing country.
Q. Are there any foreign investors in China today? A. Yes, there are nearly 180,000 foreign-invested enterprises in China, which provide 20 million jobs.
Q. Who are some of the U.S.-based companies that have offices in China? A. Tenants in the Beijing High-Tech Valley include IBM, GE, Mitsubishi, and many other multi-national corporations.
Q. Are there any tax breaks for U.S. companies opening operations in China? A. Any foreign invested production enterprise in China’s research parks shall pay enterprise income tax at a reduced rate of 15 percent on the income derived from production, business and other resources. The enterprises scheduled to operate for a period of 10 years or more shall be exempt from enterprise income tax in the first and second profit-making years and allowed a 50 percent reduction in the third year.
Q. Can I get my investments out of China? A. Yes, most VCs, such as Intel Capital, have invested in China startups via holding companies outside of China. These holding companies can then go public outside of China. Vivid examples are ChinaDotCom, Sina, UTStarCom, and AsiaInfo. Additionally, the WTO will gradually relax doors that control flow of capital in and out of China.
Q. What are the biggest hurdles to overcome? A. Unlike the United States, China has only a limited investment infrastructure such as few angel investors, limited soft incubation, little or no management expertise to run successful enterprises, and a limited number of venture capitalists.
Q. What are some of the mistakes U.S. companies make in entering China? A. Many U.S. companies entering China have no developed guanxi, (strong ties or relationships). As a politically evolving country, moving from rigid, planned economy rule to a market driven society, foreign businesspeople expecting to do business in China still require an association with established contacts and influencers in order to gain access to investment opportunities. Lastly, there are obvious language and cultural knowledge barriers that need to be scaled before conducting business in China.
Industry Outlook Q. What is the IT outlook? A. Revenue in the China IT market will exceed US$30 billion by 2004.
Q. How many Internet users are in China today? A. Currently there are just over 20 million Internet users.
Q. What is the projected number of Internet users? A. The number of Internet users is growing at a compounded rate of 54 percent per year. In addition, China will be number two in the world behind the Untied States by the end of 2001. Yet, as the U.S. Internet user rate versus population approaches 60 percent, China’s penetration rate will still be less than 6 percent by the end of 2001.
Q. What is the number of mobile users in China? A. As of September 2000, there were 70 million mobile phone subscribers in China, representing only 4.5 percent of the total population. The number of mobile users in China will exceed 200 million within three years, according to IDC, yet market penetration will still be less than 16 percent. The U.S. market penetration will exceed 50 percent by 2002.
DragonVenture’s areas of Interest Q. What areas will DragonVenture focus its resources on? A. DragonVenture will focus on Internet infrastructure, telecom and Linux companies.
Q. Why did DragonVenture select Beijing to open an office? A. Zhongguancun, a district of Beijing commonly referred to as the “Silicon Valley of North China,?alone has 6,000 incubating companies. DragonVenture was selected as the first on-site soft incubation company and our office is in the heart of Zhongguancun.
Q. Why DragonVenture? A. As a group, the DragonVenture team comprises a combined 100+ years of solid investment, business and technology experience, as well as possesses a keen understanding of Chinese culture. The team understands
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