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Walden International, a China-focused venture capital firm, is in talks with several potential Chinese partners to launch its first yuan-denominated fund, which will invest in small and medium-sized enterprises, a senior executive said.
Walden, headquartered in San Francisco, is in talks with several industrial parks in eastern Chinese cities, including Shanghai, Hangzhou and Suzhou, on setting up a fund although no deal has been reached, said Bill Li, Walden's Beijing-based managing director.
"We are planning a yuan-denominated fund via co-operation with local governments or industrial parks," Li told Reuters in a recent interview in Hangzhou. He added that moves to set up yuan-denominated funds were becoming widespread.
"Everybody in the industry is thinking of the same thing nowadays and I believe it is important to have a local partner to help you to work it out together," he said. Most Chinese industrial parks, such as Shanghai's Zhangjiang and Suzhou's Hi-tech, are owned by local governments and managed by area developers.
The Chinese government began to promote building such industrial zones in the early 1990s to support the country's economic reforms and to lure foreign investment. "Our research has found that many entrepreneurs in Zhejiang province are facing problems from tight liquidity, due mainly to China's tight monetary policy," Li said.
Zhejiang, near Shanghai, is one of China's richest provinces and home to many booming privately held businesses. "Whenever the government turns to tight monetary policy, these small and medium-sized private enterprises always suffer the most," he said. That could provide investment opportunities for private equity or venture capital funds that would be able to help entrepreneurs out of financial trouble, he added.

Copyright Reuters, 2008

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