Ties That Bind - Bay Area Council Economic Institute

Investment: Building Global Businesses in a New China
ChinaVest’s initial funds were in the $25 million range, growing during the 1990s to the $100
million level for two funds in 1993 and 1998. Currently, according to Senior Vice President Michael
Brownrigg, $100–150 million is the logical scale for new China funds. ChinaVest began
operating in China in 1983 as a venture fund. Since then it has invested in more than 60 companies,
and has expanded over the years to offer independent research and financial advisory services.
In 2004 it opened a merchant bank to broaden its capabilities. Today ChinaVest funds enterprises
valued at $25–400 million in several specific sectors: logistics and distribution, valueadded
manufacturing, information technology/media and, more recently, biotechnology. Twothirds
of its investments are in greater China, and the remaining third is with U.S. companies
operating in China.
Former HP executive Lee Ting, now managing director of W.R. Hambrecht + Co. says his
firm has a China venture strategy that focuses on “application of technology in disruptive business
models that provide high-value services to underserved mass consumer markets.”
Bay Area venture capital firms are playing a distinct role in China through their support for entrepreneurial
activity and the creation of new companies with high growth potential, particularly
in the IT and internet sectors. Still, it’s not a business for the timid. Brownrigg is skeptical of
venture investment and the recent round of M&A rollups, noting that the short-term returns
have been great but few of the companies have proven to be long-term successes. Several VC
fund managers have voiced concern that too much money may now be chasing the “China miracle.”
Investments by newcomer funds continue to focus in the already saturated Beijing, Shanghai
and Shenzhen markets and in oversubscribed tech segments—even startup websites and
blogs—suggesting the possibility of a tech bubble developing in China. This has pushed established
funds to diversify their holdings and to pursue companies and deals in less traveled parts
of the country.
Biotech and Healthcare Look Offshore
Biotech research in China began with establishment of the National Center for Biotechnology
Development in 1983 and, a short time later, the “863 Program” to fund various science initiatives,
among them biotech. The first pharmaceutical patents were granted in 1993.
Today, China’s biotech sector includes more than 300 companies that conduct research and offer
products and services. Most manufacture low-end laboratory equipment, chemical reagents, generic
pharmaceuticals, vitamins, and remedies based on traditional Chinese medicine. But an estimated
$600 million annually in central government R&D funding, plus project support from
local and provincial governments and growing foreign investment, have transformed the industry
and accelerated growth over the past eight years. The government has targeted biotech as a priority
area development in the next 15 years. New companies have moved into more advanced
areas such as gene therapy, antibodies, genetically modified foods and traditional Chinese medicine
(TCM) modernization.
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