国办发[1999]105号
(Issued by the Ministry of Science and Technology, the State Development Planning Commission, the State Economic and Trade Commission, the Ministry of Finance, the People's Bank of China, the State Administration of Taxation and the China Securities Regulatory Commission on 16 November 1999.)
颁布日期：19991230 　实施日期：19991230 　颁布单位：国务院办公厅

The following opinions on establishing a venture investment mechanism have been put forward in order to implement the spirit of the phrase "foster a capital market conducive to the development of high and new technology industries and progressively establish a venture investment mechanism" from the Central Committee of the Communist Party of China and the State Council, Strengthening Technological Innovation, Developing Advanced Science and Technology and Realizing Industrialization Decision (Zhong Fa [1999] No. 14), to guide and standardize venture investment activities and to promote the healthy development of venture investment.

1. The significance of establishing a venture investment mechanism

(1) Innovation is the progressive soul of a people and the inexhaustible motive force driving the prosperity and development of a country. Technological innovation is the basic driving force permitting sustainable economic development and the basic guarantor for increasing international competitiveness and realizing economic security. The establishment of a venture investment mechanism which can efficiently mobilize and concentrate venture capital, promote the transformation of know-how into high and new technology and accelerate the pace of commercialization and industrialization of high and new technology achievements is necessary to enable the effective transformation of knowledge into high and new technology and to enable the effective industrialization of high and new technology achievements. The establishment of a standardized venture investment mechanism is extremely significant in promoting the building of a State technological innovation system, raising the overall quality of the national economy, integrating national capabilities and realizing overarching development. The establishment of an effective venture investment mechanism plays a very important role in the development of high and new technology and the conversion of its achievements into industrial products.

(2) During the past few years, scientific and technological development in China has supported the buildup of the national economy, and the contribution of technological progress to economic growth has increased. However, the weak ability to convert science and technology into actual productive forces, the low degree of industrialization of high and new technology achievements and the small number of high and new technology industries with their own intellectual property rights remain basically unchanged. Under the increasingly severe competition in the international market place, the lack of one's own technological innovation capabilities makes it difficult to ensure sustainable national economic development and national economic security. The establishment of a venture investment mechanism and promotion of the industrialization of high and new technology achievements are necessary for the implementation of the strategy of making the country prosperous through scientific education.

(3) "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. The establishment of a venture investment mechanism requires the creation of a favourable external environment and reform system and the fostering of an economic operation system which is appropriate to the economic patterns of a socialist market economy, conducive to accelerating technological innovation and the transformation of achievements, and capable of integrating the promotion of technological progress carried out by the economic authorities with the protection and support offered by the financial authorities. Its main components include investing entities, investment targets, channels of withdrawal, intermediary service organizations, the oversight system.

(4) The objective of establishing a venture investment mechanism is to promote the marketing of high and new technology achievements, realize the industrialization of such achievements, enhance the contribution of scientific and technological progress to economic growth and, through the creation of a favourable external environment, spur enterprises to actively become involved in technological innovation and scientific and technology venture activities and promote adjustments in, and the upgrading of, the industry and product structures to produce a benign cycle.

2. Basic principles for establishing a venture investment mechanism

(5) When establishing a venture investment mechanism in accordance with the economic patterns of a socialist market economy, it is necessary to be market-oriented and develop venture capital sources; use market mechanisms to strengthen the internal accountability restraints and profit incentives of venture investors; foster intermediary service organizations that serve the venture investment market in a standardized and orderly manner; gradually foster a capital market system which facilitates the withdrawal of venture investments and is conducive to the development of high and new technology industries in accordance with the actual circumstances in China; establish a venture investment risk minimization, information disclosure and regulatory system; and formulate corresponding laws and regulations which facilitate the injection and withdrawal of international venture capital and progressively connect to the international venture investment market.

(6) The initiative of people's governments at all levels and social forces should be maximized in order to accelerate the establishment of a venture investment system. The State should promote the establishment of the venture investment system in accordance with the principles of "formulating policy, creating the environment, strengthening oversight and controlling risk"; encourage various types of investors like local governments, enterprises, financial institutions, individuals, foreign business entities. to actively promote and participate in the development of venture investment; provide wider market access and give the necessary policy support to venture investment activities and to the investments by various types of organizations and individuals in venture investment organizations; formulate a package of laws, regulations and systems relevant to venture investment and establish related regulatory standards and a regulatory system; and place importance on bringing into play the functions of science and technology venture service centres, high and new technology development zones, institutions of higher learning, science and technology parks and other organizations during the process of promoting the establishment of the venture investment mechanism.

3. Fostering venture investment entities

(7) Venture investment companies and venture investment funds are the prevailing venture investment entities. Their main service targets are high and new technology enterprises and small and medium-sized science and technology enterprises. Their main function is to attract the venture capital of various types of investors and to provide capital, business management and other types of support for the industrialization of high and new technology achievements. Their main members are experts specialized venture investment. Their main method of using capital is the "strategic investment" method, but they can also use numerous other methods of investing like equity investment, convertible securities.

(8) Venture investment companies are non-financial enterprises whose main business activity is venture investment. Their main lines of business are investment in high and new technology enterprises and small and medium-sized science and technology enterprises, transfer of the equity generated from the investment, provision of financing consultancy to high and new technology enterprises, participation in the business management of the enterprises in which they invest, etc. At the time of establishment of venture investment companies, attention should be paid to the separation of government and enterprise, and non-State enterprises, individuals, foreign business entities and other organizations should be encouraged to make equity investments in such companies. Venture investment companies shall take the form of a limited liability company or company limited by shares, and new operational models should be actively explored. Venture investment companies shall be permitted to use their entire capital for investing.

(9) Venture investment funds are a type of investment fund which specially engages in venture investment to promote the development of small and medium-sized science and technology enterprises. Venture investment funds shall use the method of private placement to issue fund units to specific investors, in order to accommodate the special characteristics of venture investment. Their placement targets may be individuals, enterprises, institutional investors and foreign investors and they should develop the tapping of non-governmental capital sources. In addition, such funds shall impose certain requirements concerning the risk capacity of investors. The funds committed by investors may be paid in in installments.

Venture investment funds shall be established as closed-end funds, that is, the total amount of units issued and the life of the fund shall be determined in advance and the fund units may not be redeemed during the life of the fund.

(10) The paid-in money capital of venture investment companies and venture investment funds must be adequate. The amount invested by venture investment companies and venture investment funds in high and new technology enterprises shall account for a relatively large proportion of their paid-in capital. Their investment ratio in a specific enterprise or any single project should not be exceedingly high, in order to limit their exposure.

(11) The main management personnel in a venture investment organization shall meet such conditions as understanding technology, being capable at management, not having a record of improper activity, truthfully declaring their personal finances, being willing to bear corresponding liability for business losses.

(12) Venture investment organizations shall establish sound internal incentive mechanisms and restraint mechanisms. They may motivate their business management personnel by means of stock options, in accordance with the principle of permitting and encouraging the participation of such factors of production such as capital and technology in the distribution of returns. Matters such as the type and number of stock options, the conditions for granting them, restrictive conditions, the method of exercising the options shall be based on business performance and provided for in contracts between the contributors of capital and the business management personnel. Such contracts shall also specify the liability to be borne by senior management personnel for such acts as dereliction of duty and gross negligence.

The establishment, examination and approval of venture investment companies and venture investment funds must be carried out in accordance with the procedures and processes formulated by the relevant State Council authorities.

4. Establishment of a mechanism for the withdrawal of venture investments

(13) Channels for the withdrawal of venture investments should be established and developed, in order to promote the development of venture investment. "Withdrawal" is a business act in which the return from a venture investment is obtained through an equity transfer. The objective laws of capital use shall be adhered to and smooth channels of withdrawal created in order to effectively attract funds in society into the sphere of venture investment, ensure a benign venture investment cycle and resolve such venture capital problems as equity flow, risk dispersal, value appraisal.

The main methods of withdrawing venture investments include enterprise acquisitions and mergers, equity buy-backs, stock market listings.

(14) The phrase "enterprise acquisitions and mergers" means the act whereby unlisted high and new technology enterprises transfer part or all of their equity to other enterprises or individuals. Non-bank financial institutions, listed companies, industrial investment funds and other companies and individuals shall be permitted and encouraged to participate in acquisitions of, and mergers with, high and new technology enterprises.

(15) The term "equity buy-back" means the act whereby an enterprise buys back the equity held in it by a venture investment organization. Financial institutions, small and medium-sized credit security funds and all other types of security organizations shall actively support the equity buy back activities of high and new technology enterprises.

(16) When the conditions are ripe, high and new technology enterprise boards should be established at the existing Shanghai and Shenzhen stock exchanges to provide listing and trading services for high and new technology enterprises and in particular for small and medium-sized science and technology enterprises. This will not only permit full usage of existing facilities and regulatory resources and be conducive to centralized and unified regulation of the securities market, but will also make it possible to relatively quickly develop and improve the channels for the withdrawal of venture investments. The specific procedures for issuance, listing and trading of their stocks will be formulated by the China Securities Regulatory Commission.

(17) Foreign venture board stock markets, like the US's NASDAQ and the Growth Enterprise Market established by the Stock Exchange of Hong Kong can also be used as a channel for withdrawing venture investments. In policy terms, favouring the listing abroad of high and new technology enterprises is beneficial in permitting the use of international capital to develop China's high and new technology industries, attracting foreign venture capital into China's venture investment market and enabling high and new technology enterprises to take their place in the international market. The specific procedures for listing and trading will be formulated by the China Securities Regulatory Commission.

5. Improving the system of intermediary service organizations

(18) The important functions of intermediary organizations in such areas as consultancy, supervision and appraisal should be maximized. Venture investment requires existing intermediary service organizations to provide services in that respect and also requires the establishment of specialized intermediary service organizations including industry associations, science and technology project appraisal organizations, technology brokerages, venture investment consultancy and advisory organizations which target the special character and specialized needs of such investment.

(19) When establishing intermediary service organizations the principle of separating government and enterprise shall be strictly adhered to, enabling them to become legal person entities which earn their own reputations, are responsible for their own profits and losses and bear their own economic and legal liabilities. They shall legally engage in business activities in accordance with the principles of acting in good faith and operating in a fair and scientific manner.

(20) Venture investment industry associations established after examination and approval, being the industry's self-regulatory organizations for venture investment entities, high and new technology enterprises, relevant intermediary service organizations and others should formulate industry standards and service standards and evaluate the business practice of their members so as to form a self-regulating mechanism. The said associations should engage in such areas as the training of venture investment personnel and the development of non-governmental international exchange activities.

6. Establishing a sound system of policies, laws and regulations to encourage and guide venture investment

(21) The relevant authorities of the State Council will formulate specific implementing procedures for the application for, and examination, approval and administration of, the establishment of venture investment companies and venture investment funds pursuant to these Opinions in order to promote the establishment of a standardized venture investment mechanism. They will study and formulate fiscal and financial support policies and policies encouraging the access of foreign venture capital to the venture investment market which are beneficial to the development of venture investments; study and formulate an implementing plan for the establishment of "high and new technology enterprise boards" at the Shanghai and Shenzhen stock markets and study and formulate policies, laws and regulations relevant to the issuance, listing and trading of stocks of small and medium-sized science and technology enterprises; study and formulate policies relevant to the issuance of securities and listing of small and medium-sized science and technology enterprises on foreign growth enterprise board markets; and study and formulate procedures for the examination, approval and administration of the establishment of venture investment industry associations.

(22) The relevant authorities of the State Council will regularly formulate and issue venture investment project (sector) guidelines to target the investment of venture capital in accordance with State industrial policy, technology policy and the strategic objective of adjusting industry and product structures.

Venture investment is a special, highly competitive method of capital use which has a long payback period and a high degree of risk. When promoting the establishment of a venture investment mechanism, each region shall pay attention to minimizing risk, developing the system in a lawful and orderly manner, preventing a frenzy and avoiding the phenomenon of solely or chiefly relying on the government to contribute capital to establish venture investment organizations. The industry should be encouraged to primarily rely on non-governmental capital, while the basic principles for the government's role should be guidance, support and limited participation. The people's government of each province, autonomous region and municipality directly under the central government shall steadfastly integrate short and long-term objectives, adopt realistic and practicable measures, and concentrate their efforts in such areas as creating the environment, improving the market mechanism and attracting foreign and domestic venture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.nture capital, so as to actively and steadily promote the development of venture investment.