China Chilling

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    Jeff Cornwall, the director of the Center for Enterpreneurship at Belmont University in Tennessee, recently quoted a Red Herring report (which I can’t find online at redherring.com), suggesting that China “may be cooling as an international entrepreneurship hotbed.” (To find the blog entry, scroll nearly to the bottom of the page.)

    Apparently, venture capital dropped in 1Q05 by about a quarter, according to Zero2IPO, a Beijing-based investment advisory firm. The Red Herring article suggests this is a result of a new government policy in China, titled, “Document 11,” which makes it difficult for “Chinese entrepreneurs to establish the elaborate structures that facilitate listing on international stock markets.”

    According to this article in Red Herring, companies typically go public by “setting up offshore entities and pursuing foreign listings through them.”

    I would say another reason might just be the pause companies are going through as they ponder what the China-Japan protests were really all about.

    Why do I bring this up? Because, as Mr. Cornwall writes:

    Add these developments to the pervasive reports of Chinese businesses thumbing their noses at intellectual property rights and we may see a rocky road ahead for our economic relations with this government. At a minimum, it all drastically increases the risk for American small businesses doing any business with Chinese companies in the next year.

    Some companies — the biggies like GE and Intel — will still plow ahead with China plans, because they can afford to write off risky ventures that don’t work out. Small and mid-sized organizations have to be more circumspect.

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