Qingdao City, Encouragement of Venture Capital Investment in the High and New Technologies Industry Provisions

Promulgated: June 10 2002
Effective: July 10 2002
Applicability: For the purposes of the Provisions, "venture investment" refers to investment acts whereby equity capital, management and constancy services are provided mainly to rapid growth venture enterprises in the science and technology sector in the hope that medium to long term capital gains can be reaped through an equity transfer after the enterprise has developed and matured (Article 2).
For the purposes of the Provisions, "venture investment organizations" refers to venture investment companies and venture investment management companies (Article 3); and "rapid growth venture enterprises in the science and technology sector" refers to enterprises that produce products that conform to the State high and new technology industrial policies and are listed in the city's high and new technology product catalogue (Article 4).

Main contents: Venture investment organizations must fulfil certain conditions for establishment (Article 8): the liquid capital portion of a venture investment company's registered capital should not be less than Rmb10 million, while the entire registered capital of a venture investment management company should be liquid capital and total not less than Rmb1 million; organizations should have procedures and mechanisms for investment screening, policy making and risk control; and should have a system for regular disclosure to investors.
Venture investment companies can engage in direct investment in projects listed in the high and new technology catalogue. Both types of organizations can engage in venture investment consultancy and management of other venture investors' venture capital or investments (Articles 9 and 10).
Venture investment companies can use their entire capital to invest, and their registered capital can be paid in instalments, but the first instalment should not be less than 50% of the total registered capital, and the rest must be paid within two years from the date the organization's business licence was obtained (Article 12).
Venture investment organizations with more than 70% of their total investments invested in high and new technology industry can benefit from preferential policies: they can maintain up to 5% of return on investment as a venture reserve fund to cover losses for that year and previous years; and the government guarantee fund can be used to provide them loan security (Article 13).
When an organization withdraws its investment in a project listed in the high and new technology catalogue, if the investment income and the previous year's income total less than the initial investment, the organization can use the current year's and subsequent years' return on its investments to cover the loss (Article 14).