The final launch of China's Growth Enterprise Market (GEM) is imminent after nearly a decade of preparations. "We will establish a market for growth enterprises, accelerate development of the securities market and steadily develop the futures market," said Premier Chinese Wen on the morning of March Fifth in the two sessions (i.e. First Session of the 11th National People's Congress (NPC) and the First Session of the 11th National Committee of the Chinese People's Political Consultative Conference (CPPCC)). Premier Wen did not specify the schedule of the launch of GEM, but his remark reflects the launch of GEM is in the near future.

On March 21, the China's securities regulator released Initial Public Offering and Administration Measures on Enterprises Listing on Growth Enterprises Market (draft rules) on its website. The draft rules for the GEM stipulated the conditions, procedures of issuance, information disclosure, supervision and punishment in a specific fashion. All the eyes, then, have been on the upcoming launch of the GEM and its operation mode. The board, as part of multi-level capital market in China, will be established soon after over nine years of preparations.

Venture capital firms are always seeking for optimal exit options and rational returns to ensure long term success and sustained operation. As the world's second largest VC investment market, China planned to introduce the mode of global developed markets to establish a market for start-ups, especially for tech start-ups. Since its very beginning nine years ago, growth ventures, start-ups in high tech parks, securities companies and their direct investment branches, and varied investors have been upbeat on the launch of the GEM. Further, the GEM will provide private equity investors an exit option, thus binding a wide array of VC capitalists and startups with VC backing.

The launch of the draft rules for the GEM is the result of the concerted efforts of all the parties involved. For instance, Shenzhen Stock Exchange bourse has collected 200 enterprises in the pool waiting for going public. Fifty-three state-level high tech parks, together with local governments, have designed listing schemes for their enterprises. The competition facing 100-odd securities companies becomes increasingly tense. They are poised to garner larger market share of investment banking and direct investment businesses.
 
As a matter of fact, the fortune effect has been obvious on A share market before the formal launch of the GEM. On the securities market, VC-backed shares rallied, with the prices soaring. This agitates the deep concern of investors on the potential, short-term speculation. The draft rules reveal that the CSRC is considering setting up a specified issuance review sub-committee with a view to stressing the responsibilities for sponsors and holding shareholders, enhancing company governance and alleviating risks for startups, which are universally of small scale, strong innovation but high risks. To put it simply, the CSRC is attaching great importance to risk management to guarantee the smooth launch of the GEM after it's seriously analyzed the current economy and the capital market development levels (Note: China is still on the initial stage of socialism and its capital market is still much lagging behind that for global developed markets).   

From the standpoint of national strategy, the launch of the GEM is critical for building China into an independent innovative state and comprehensively lifting the ratio of direct financing in China. It is just a draft version, but it illustrates the blueprint for the coming GEM. After the CSRC promulgates the final version (plan) and supportive bylaws related to the plan, we envision that China will see a big progress in building a multi-level capital market.

Another good news for foreign VCs is that the Ministry of Commerce of PRC released on March 6 Guiding Opinions of the General Office of the Ministry of Commerce of the People's Republic of China, on the Work of Absorbing Foreign Investment Nationwide in 2008, stipulating that the establishments of  VC firms by foreign investors should be encouraged, the exit mechanism of VC investment be improved, and the listings of competent enterprises with backing of foreign investors on domestic capital markets be guided. 

The third good news for VC circle is that apart from the GEM, the launches of OTC market and market for corporate bonds trading are also gradually underway. They are all part of the multi-level capital market in China. The State Council has approved the establishment of OTC market in Tianjin, first ever of this type market in China, according to a report on March 20. The OTC market will provide more access to the capital market for millions of private (non-public) enterprises and help ease their financing problem. The so-called "third market", which functions a platform of providing share transfer agency services, will be extended to all the high tech parks across China from Zhongguancun Park in 2008. Shanghai United Assets and Equity Exchange recently revealed that it will take significant measures to expedite PE investment activities in a bid to explore the possibility of establishing the Market Maker Rule for property trade market and promote the smooth flow of all kinds of property norms. The establishment of the systemic, multi-level capital market in China grinds on. Against this backdrop, it can be projected that a VC system with a unique Chinese characteristic is also in the gradual formation. It is obvious that VC investment wil play a more and more important role in promoting scientific and economic development.