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In accordance with the "Law of the People's Republic of China on Promoting the Transformation of Scientific and Technological Achievements", "Some Opinions of the Ministry of Finance and the Ministry of Science and Technology Forwarded by the General Office of the State Council on Improving and Strengthening the Administration of Scientific and Technological Funds Allotted by the Treasury of the Central Government" (No. 56 [2006]), other relevant laws and regulations, as well as the tenets of other documents, and in order to implement the scientific development view, construct an innovative country, support the development of commonweal industries and national strategic industries, promote the rapid and healthy development of the venture capital undertaking in China, the Ministry of Finance and the State Development and Reform Commission have decided to provide partial funds as venture capital for research and development of national industrial technologies. We hereby give our opinions as follows regarding relevant matters: I. PRINCIPLES ON VENTURE CAPITAL (1) Market-based operations. We shall face the market, give scope to the guiding function of government funds, fully absorb public capitals and invest them in hi-tech industries; the venture capital project undertakers shall, by aiming at the market, operate the business independently and assume sole responsibility for its profits or losses; the government departments shall not intervene in the operation of the project undertakers, while the management institutions shall, upon entrustment of the government, exercise investors' rights on the basis of the investment amount and bear corresponding liabilities accordingly. (2) Encouraging innovations. The experiment of venture capital among industrial technology research and development funds shall mainly aim at commonweal or public projects of scientific and technological research and development and those of achievement transformation at the seed stage and start-up stage in hi-tech industries. Such projects contain original innovations, integrative innovations or digestible and absorbable re-innovations, and are different from the projects of general commercial risk capital, nor are they for the purpose of maximizing benefits. (3) Stressing guidance. The purposes of experimenting venture capital among industrial technology research and development funds are to guide public capital to be invested in hi-tech industries, to resolve the want of funds in hi-tech industries at the seed stage and the start-up stage, and to, on the condition that the venture capital shall not occupy majority shares or dominate the management, mobilize the project undertakers' initiative, and apportion risks, as well. (4) Lawful Management. A lawful continuing project selection mechanism shall be built up. Various methods shall be adopted to strengthen the capability cultivation of management institutions, to intensify the responsibilities of management institutions, and to build up an effective risk prevention system and incentive mechanism. The project undertakers shall, according to public finance principles, timely withdraw the venture capital, and turn in the recovered funds to the treasury of the Central Government when it becomes mature. II. ENTRUSTED VENTURE CAPITAL MANAGEMENT INSTITUTIONS (I) Determination of Entrusted Venture Capital Management Institutions. A professional management institution shall be entrusted to manage venture capital, and the Ministry of Finance shall, jointly with the State Development and Reform Commission, determine the professional management institutions by way of invitation to bid, and conclude entrustment agreements with the professional management institutions. (II) Eligibility conditions of an entrusted management institution: 1. Having the status of an enterprise legal person; 2. Having no less than 100 million Yuan of registered capital; 3. Having been engaged in venture capital management for 5 years or longer; 4. Having at least 5 practitioners with 3 years or more of work experience in the venture capital business; 5. Having sound venture capital management bylaws; and 6. Having successful experiences in operating venture capital projects. (III) Duties of an entrusted management institution: 1. To recommend investment projects required by the present Opinions and other relevant provisions; 2. To be entrusted to exercise investor's rights to the invested enterprise within the limit of the investment amount, including sending directors and supervisors to the invested enterprise, and to lawfully exercise rights via the shareholders' meeting, the board of directors, and the board of supervisors; 3. To make full use of its own resources and its experiences in the venture capital business so as to provide the invested enterprise with various value-added services, to help the enterprise build up lawful management bylaws, and to promote the development of the enterprise; 4. To report the invested enterprise's project progress, stock capital changes and other major facts to the Ministry of Finance and the State Development and Reform Commission at regular intervals; and 5. To organize the withdrawal of venture capital when so required, and to timely turn over the recovered funds to the treasury of the Central Government. III. SELECTION OF VENTURE CAPITAL PROJECTS (I) A venture capital project shall meet the following conditions: 1. It is technically characterized by commonweal and public interests, and is obviously able to enhance the independent industrial innovation capacity and the core competitive strength of the enterprise; 2. It has independent intellectual properties with high technical contents; and 3. It has promising market prospects and strong anticipated profitability if it is weak recently to raise funds. (II) Venture capital project may be selected in the following two ways: 1. The State Development and Reform Commission may, jointly with the Ministry of Finance, promulgate the Guidance for Applying for Venture Capital Projects according to the national economic, scientific and technological development strategies and planning. The development and reform commission at each locality may, jointly with the public finance department (bureau), organize relevant projects required by the present Opinions, and recommend them to the State Development and Reform Commission and the Ministry of Finance, while the State Development and Reform Commission shall, jointly with the Ministry of Finance, decide whether to approve the investment projects and investment amounts after organizing experts to make an appraisal and on the basis of concluding an investment agreement between each entrusted management institution and its invested entity through negotiations. 2. The entrusted management institution may recommend investment projects. The entrusted management institution may, according to the principles and requirements prescribed in the present Opinions, and within the key venture capital-supported areas determined by the State Development and Reform Commission and the Ministry of Finance, evaluate and select a project it has invested, and report it to the State Development and Reform Commission and the Ministry of Finance. The State Development and Reform Commission shall, jointly with the Ministry of Finance, decide whether to approve the investment projects and investment amounts on the basis of the expert appraisal. (III) Materials to be submitted for the application for a venture capital project: 1. the project feasibility study report and the preliminary expert argument opinions; 2. the project declarer's accounting reports and credit standing materials which were audited by intermediary institutions in the latest two years; 3. the existing stock right structure of the project declarer; 4. resolution of the project declarer on consenting to the shares held in the form of fiscal investments; and 5. other relevant materials. IV. ALLOTMENT OF FUNDS The Ministry of Finance shall, on the basis of the directory and amounts of the approved investment projects, as well as the investment agreements concluded between the entrusted management institutions and their respective invested entities, allot funds to the special fiduciary accounts of the entrusted management institutions according to relevant provisions, and the entrusted management institutions shall then allot the said funds to their respective invested entities. An entrusted management institution's special fiduciary account shall be opened in an agency bank designated by the Ministry of Finance, while the Ministry of Finance, the entrusted management institution and the bank of deposit shall conclude an agreement to specify that only after the trusteeship institution has received the allotment notice from the Ministry of Finance may the bank be notified to allot the funds. Where the allotment cannot be continued due to any particular reason, the entrusted management institution shall timely recover the investment funds and turn them over to the treasury of the Central Government. V. WITHDRAWAL OF VENTURE CAPITAL The venture capital in a project may be withdrawn by way of merger or acquisition of enterprises, buy-back of stock rights, listing on the stock market, etc. An entrusted management institution shall take charge of observing the opportunities an investment project to withdraw, and shall work on the withdrawal when the withdrawal opportunity comes. It shall also timely report the withdrawal opportunity and the withdrawal method, to the Ministry of Finance and the State Development and Reform Commission. The withdrawn funds (including the recovered dividends) shall be directly recovered to the special fiduciary account, and be turned in by the entrusted management institution to the treasury of the Central Government in time. VI. EXPENSES OF ENTRUSTMENT Whoever entrusts a management institution to manage venture capital shall pay certain fees. The fees fall into two parts: one part is for daily management expenditures, which shall not be higher than 3% of the remaining investment amount, and the other part is for rewarding performance, which shall not be higher than a certain proportion of the total investment proceeds (net proceeds after making up the losses). The specific arrangements on the expenses of entrustment shall be set forth in the entrustment agreement. VII. ASSESSMENT AND SUPERVISION (I) An entrusted management institution shall carefully perform corresponding management duties according to the present Opinions and the matters agreed upon in the entrustment agreement. The entrusted management institution shall make corresponding venture capital management bylaws, work flows and risk prevention bylaws, and set up corresponding work departments, as well. (II) The Ministry of Finance and the State Development and Reform Commission shall assess and supervise the entrusted management institutions, and have the right to inspect the entrusted management institutions at irregular intervals and to monitor the funds in special fiduciary accounts. Each entrusted management institution shall submit its accounting reports and venture capital management reports at regular intervals to the Ministry of Finance and the State Development and Reform Commission at least once every year, with the contents of the reports mainly including: 1. the assets, liabilities and owners' equities of the entrusted management institution; 2. the operation of the entrusted management institution; 3. the venture capital scale and the completion of the investment contribution; 4. the operation of the invested enterprise; 5. the withdrawal and proceeds of the venture capital; and 6. other matters set forth in the entrustment agreement. (III) Where an entrusted management institution is under any of the following circumstances, the Ministry of Finance and the State Development and Reform Commission shall have the right to cancel or replace the entrusted management institution, and may resort to legal means when necessary: 1. It no longer meets the eligibility conditions prescribed in the present Opinions; 2. It has committed any gross violation of any law or rule; 3. It is lawfully revoked, dissolved or declared as bankrupt; or 4. Other circumstances set forth in the entrustment agreement. The experiment of venture capital as industrial technology research and development funds is a new and helpful exploration of the way of supporting hi-tech industries with fiscal funds. However, venture capital is featured by its long investment period and contains many risks, so attention shall be paid to the prevention of risks, and the experiment shall be developed in an orderly manner according to law. We shall focus on giving full scope to the functions of the market-based mechanisms, give scope to the seed functions of fiscal funds, and promote the development of the venture capital undertaking actively and steadily. |
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