Current Legal Problems and Prospective Reforms
E-Book, Englisch, 102 Seiten
ISBN: 978-0-85709-451-3
Verlag: Elsevier Reference Monographs
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)
Lin Zhang is Assistant Professor at Korea University Law School, South Korea. Formerly Lecturer in Law at College of Humanities and Law of Shandong University of Science and Technology, China. In the past five years he has published 9 papers in peer-reviewed journals. He has written a book about the adaptive efficiency of the corporate governance of Chinese state-controlled listed companies, published in 2011. Lin holds a PhD in Law from Hong Kong University.
Autoren/Hrsg.
Weitere Infos & Material
1;Front Cover;1
2;China’s Venture Capital Market;4
3;Copyright Page;5
4;Dedication;6
5;Contents;8
6;List of tables;10
7;About the author;12
8;Preface;14
9;List of abbreviations;16
10;1 A profile of China’s venture capital market;18
10.1;Venture capital and innovation;20
10.1.1;Case study: Facebook;20
10.1.1.1;Impact on advertisement;21
10.1.1.2;Impact on daily life;21
10.1.1.3;Impact on political life;21
10.1.1.4;Impact on popular culture;22
10.1.2;Case study: Alibaba;22
10.1.2.1;Information flow;23
10.1.2.2;Value-added service;23
10.1.2.3;Payment platform;24
10.1.3;Case study: Ningxiahong;24
10.1.3.1;Management advice;25
10.1.3.2;Technological support;25
10.1.3.3;Listing consultancy;26
10.2;A historical overview of the Chinese venture capital market;26
10.2.1;The first stage (1984–1990);26
10.2.1.1;China New Technology Venture Investment Corporation;27
10.2.1.2;The Torch Scheme;28
10.2.2;The second stage (1991–1997);30
10.2.2.1;Nanshan Venture Capital Fund;30
10.2.2.2;Jiangsu Govtor Capital Company;31
10.2.3;The third stage (1998-present);33
10.2.3.1;Focus Media;33
10.2.3.2;Fortune Capital;35
10.2.3.3;Support from shareholders;36
10.2.3.4;Following foreign venture capital;36
10.2.3.5;Prudent investment;36
10.2.3.6;An outstanding business plan;36
10.2.3.7;Good timing;36
10.2.3.8;Qualified project managers;36
10.2.3.9;Incentives;37
10.3;A current profile of the Chinese venture capital market;37
11;2 Fundraising for Chinese venture capital: legal problems and reform measures;42
11.1;A profile of fundraising for American venture capital;42
11.2;Chinese pension funds;45
11.3;Chinese commercial banks;49
11.3.1;Bank of China;50
11.3.2;The agricultural bank of China;51
11.3.3;China construction bank;52
11.3.4;The industrial and commercial bank of China;53
11.4;Chinese insurance companies;54
11.4.1;The Maoist phase (1949–1978);54
11.4.2;The Dengist phase (1979-present);55
11.4.2.1;The revival stage (1979–1996);55
11.4.2.2;The specialty stage (1996–2003);56
11.4.2.3;The universal stage (2003-present);57
11.5;Legal reform measures;58
12;3 Operation of Chinese venture capital: legal problems and reform measures;62
12.1;Operation of American venture capital;62
12.2;Operation of Chinese domestic venture capital;64
12.2.1;Limited partnerships;64
12.2.2;Staged financing and board representation;65
12.2.3;Convertible preferred stocks;66
12.2.4;Stock options;67
12.3;Legal reform measures;68
13;4 Exit of Chinese venture capital: legal problems and reform measures;70
13.1;Exit channels of American venture capital;70
13.2;Exit channels of Chinese domestic venture capital;72
13.2.1;Main Boards;72
13.2.2;The SME board;74
13.2.3;The GEM;76
13.3;Legal reform measures;77
14;5 Conclusions: How long will it take for reform to take place in China?;80
14.1;Dispersal of the ownership of state-controlled listed companies;80
14.2;Political reform in China;82
15;Notes;84
16;Bibliography;96
17;Index;100
1 A profile of China’s venture capital market
This chapter first analyzes the role of venture capital in promoting a country’s innovative ability, a consideration which provided the impetus to drive the CPC towards engineering China’s venture capital market in the first place. Following this, it provides an overview of the historical stages in the development of China’s venture capital market and, utilizing empirical evidence, describes its current profile. Taken together, the historical overview and the current profile reveal the problems currently suffered by China’s venture capital market. They constitute the context for the remaining chapters of the book and the search for the underlying legal causes of these problems. Keywords
Venture Capital; Innovation; Historical Overview; Current Profile; Law In 1946, with the generous support of Ralph Flanders and MIT President Karl Compton, General Georges Doriot, then a professor of industrial management at Harvard Business School, established the first modern venture capital firm in the United States of America. Named American Research Development Corporation (ARDC), the mission of the new firm was simple but far-reaching: ‘…aid in the development of new or existing businesses into companies of stature and importance.’ During its 26-year existence, ARDC’s most notable success resulted from its decision to put up $70,000 to support Kenneth Olsen and Harlan Anderson in founding Digital Equipment Corporation (DEC). In its first year, DEC recorded a small profit by producing Digital Laboratory Modules, but the real harvest occurred dozens of years later. In 1968, in the wake of DEC’s successful initial public offering, the value of ARDC’s stake quickly grew to $355 million.1 ARDC was only the beginning of the success story of American venture capital. In 1978, the US Labor Department undid some of the restrictions of the Employee Retirement Income Security Act (ERISA), known as the ‘prudent man rule’, thus allowing pension funds to inject a tremendous amount of money into American venture capital firms. Following that decision, the American venture capital industry entered a ‘golden age’ lasting until the year 2000.2 During its boom period, American venture capital incubated many companies which have become household names, such as Microsoft, Apple, and Lotus, and paved the way for America to become the unparalleled leader in the global high-technology market.3 Even though the bursting of the Internet bubble tainted its image in 2000, American venture capital continues to be considered the ‘jewel in the crown’ of the American economy, and the engine which continues to push it forward.4 The legend of American venture capital has inspired the ambitions of other major economic powers, as well as emerging economies throughout the world, to engineer their own vibrant venture capital markets. The past several decades have witnessed such efforts in Europe, the Middle East, and Asia.5 Some of these endeavors have turned out rather successfully, while others have ended in failure.6 Regardless of results in individual countries, however, the trend represented by these attempts as a whole indicates that a consensus on the significance of a vibrant venture capital market has been reached by countries all over the world. Relative to its American counterpart, the growth of China’s venture capital market has been through many more hardships. Soon after the inception of the People’s Republic of China in 1949, the Communist Party of China (CPC) launched a movement to nationalize privately-held enterprises.7 By the end of 1956, this movement led to the establishment of a state-owned economy in China, which was characterized by the pervasiveness of state-owned enterprises (SOEs).8 In addition, consistent with the dominance of a state-owned economy, the CPC replicated the centrally-planned approach of the former Soviet Union to manage production and allocate resources in the country.9 The existence of the centrally-planned system completely suppressed the appearance of any substantive elements of the market-oriented economy. Consequently, venture capital was excluded from China’s economy for a long period of time. Since 1978, China’s economic ship has been steered by the policy of reform and opening-up which aims to transform China’s economy from a centrally-planned one to a market-oriented one, as defined by Mr. Xiaoping Deng, the principal architect of the transition. In the midst of this continuous institutional change, salient features of the market-oriented economy have been gradually emerging and becoming well-established in China, such as the ‘invisible hand’ of pricing, privatization of SOEs, and the venture capital with which this book is concerned. In 1984, based on the findings of a project entitled ‘New Technology and China’s Countermeasures’, the Chinese National Centre of Science and Technology for Development put forth the suggestion that a venture capital system should be engineered in order to promote technological development in China.10 This proposal quickly drew attention from the Central Committee of the CPC and the Chinese Central Government. In 1985, the CPC Central Committee promulgated its ‘Decisions to Reform the Science and Technology System’, in which the reigning party recognized for the first time the supportive role of venture capital in developing high-quality technologies.11 Only one year after this positive signal from the CPC on venture capital, the first Chinese venture capital firm, China New Technology Venture Investment Corporation, was established jointly by the State Science and Technology Committee and the Ministry of Finance, a move symbolizing the bourgeon of the Chinese venture capital market. Since then, the development of venture capital in China has gone through several landmark stages.12 By the end of 2006, China had become the second biggest venture capital market in the world, behind only America. History, however, records both achievements and problems, a principle which ought to be applied to the observation of any phenomenon in the mundane world. With regard to China’s venture capital market, it would be overoptimistic to believe that it has followed an exclusively upward trajectory. Taking this attitude would blind us to the realities of the situation. A better approach would be to observe the problems, both past and present, in China’s venture capital sector. Identifying these problems is the first step in subsequent efforts to determine their underlying causes. This book concentrates on legal factors, although there are undoubtedly other relevant factors. This chapter is comprised of three parts. Given the close association between venture capital and innovation, the first part analyzes the role of venture capital in promoting a country’s innovative ability, which was also the inspiration behind the CPC’s initial decision to engineer China’s venture capital market. The second part provides an overview of the historical stages in the development of China’s venture capital market. Finally, the third part describes the current profile of the Chinese venture capital market. This description, together with the historical overview in the second part, illustrates the problems currently suffered by China’s venture capital market. Between them, these parts constitute the context in which the remaining chapters of the book unfold: the search for the underlying legal causes of these problems. Venture capital and innovation
By definition, innovation is the creation of better or more effective products, processes, services, technologies, or ideas. Innovation is usually classified into two categories: in-house innovation and external innovation.13 In-house innovation typically occurs in large, well-established firms and existing industries.14 External innovation, by contrast, generally takes place in startups set up by entrepreneurs.15 These startups have impacts not only on existing industries, but also on the creation of entirely new industries. The propensity of venture capital towards financing high technology startups determines that it plays an essential role in promoting external innovation. Rather than relying on obscure statistics, three case studies will be related below as a vivid way to illustrate the link between venture capital and external innovation. Case study: Facebook16
Facebook was initially founded in 2004 by Mark Zuckerberg, then a Harvard junior, with his college roommates and fellow students Eduardo Saverin, Dustin Moskovitz, and Chris Hughes. At first, membership of the website was available only to Harvard students, but it was gradually extended to other universities and colleges in the Boston area, the Ivy League, and Stanford University. Later, Facebook was also opened to students at various other universities prior to granting eligibility to high school students, and eventually to anyone aged 13 or above. In January 2009, it was reported that Facebook was ranked as the most used social networking service provider. In the process of realizing the miracle of Facebook, venture capital played an important role. In late 2004, Facebook received its first venture capital investment, $500,000, from Peter Andreas Thiel, a venture capitalist and co-founder of PayPal. In 2005, Jim Breyer, a venture capitalist with Accel Partners, formed a wonderful impression of Mark Zuckerberg upon meeting him. Soon afterwards,...
