Venture Capital in China: Past, Present, and Future

8156 Words33 Pages
Ruohong Zhao Economic Development in East Asia, Term paper Dr. Yifan Zhang May 1, 2006

Venture Capital in China, Past, Present, and Future

Introduction China’s stifled economy has experienced an unprecedented period of growth since the introduction of new economic policies at the Third Plenum of the 11th Congress of the Chinese Communist Party in 1978. The long-suppressed entrepreneurial zeal of the Chinese people was rekindled with the lifting of restriction on private business ownership. Later, the advent of Western-style venture capital funds provided budding Chinese entrepreneurs with sources of hitherto unavailable capital. Western investments, advice, and discipline, combined with Chinese entrepreneurialism, knowledge, and
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During this period of great turmoil and transition, the imperial Qing dynasty that had ruled China for almost three centuries struggled to maintain the last semblance of control, while leading political figures like Sun Zhongshan contemplated the formation of a democratic republic (Spence, 1991). The relatively chaotic and transitional nature of the country, however, did not at all diminish the demand for manufactured consumer products. Instead, the gradual opening up of the country (at least the coastal regions) created new demand that could not be entirely satisfied by the Western firms that rushed to enter China. The imbalance between supply and demand gave opportunities to local entrepreneurs to create new business enterprises that would help fill the new demand. Many new, Chinese-controlled firms grew up in the foreign-dominated enclaves (mainly in and around the city of Shanghai) that provided relatively stable business environments during those turbulent times (Bergere 1989).

It was during a similar period of transition when the first of the entrepreneurs of the new China re-appeared. After the founding of the People’s Republic, the communist government abolished private ownership of businesses and nationalized all industrial and commercial concerns in 1956 (Bergere 1989). The subsequent two decades proved to be tumultuous as the Great Leap Forward, the Three-year Natural Disaster, and the Great Proletariat Cultural Revolution wrought one catastrophe
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