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Intel Capital cautious in near-term on China http://today.reuters.com/news/newsArticle.aspx?type=reutersEdge&storyID=2006-06-29T082900Z_01_PEK45935_RTRUKOC_0_US-FINANCIAL-CHINA-INTEL.xml
Thu Jun 29, 2006
By Kirby Chien
BEIJING (Reuters) - Intel Capital, the investment arm of microchip giant Intel Corp. (INTC.O: Quote, Profile, Research), said on Thursday it was cautious on China in the near-term as the current technology cycle appears to be coming to an end.
However, China's investment environment was still positive despite rising competition and higher valuations, Cadol Cheung, managing director of China, Taiwan and Korea investments, told Reuters on Thursday. "I'm more cautious now than a year ago," he said. "But we are long-term investors."
A three-year run-up on technology companies, a continuous flow of new money into China, and a rash of initial public offerings indicated the end of the current cycle was near.
"I've seen these cycles before and we won't be affected by short-term changes in the economy, but when everyone is so bullish I tend to be more cautious," he said.
Despite the caution, Intel Capital said this week it had invested in four Chinese firms from its $200 million China Technology Fund, which was established a year ago.
"China is still one of the growth engines of the world economy," said Cheung.
Individual Intel Capital investments are typically under $5 million and represent less than a 20 percent equity stake.
Fund raising by venture capitalists for China hit a record $4 billion in 2005, according to research company Zero2ipo.com. Texas Pacific Group (TPG.UL: Quote, Profile, Research) joined the crowd of venture capitalists in China this year to invest part of its $30 billion under management.
"Venture capital funds are chasing the same deals. We have to work harder to get into those deals. That's the ongoing challenge," Cheung said.
The growing sophistication of China's entrepreneurial class -- more and more of whom are forming their second or third company -- makes it easier for investors because the entrepreneurs understand the funding process, he said. "But it's also a challenge because it's more difficult to get favorable terms" on the investment.
The Chinese government is nurturing the venture capital industry with promised tax breaks for high-tech companies and an emphasis on intellectual property protection.
China has said it will allow brokerages and insurers to set up venture capital funds, giving firms more investment options.
There were about three times as many domestic venture capital firms than foreign ones last year, but their fund size was, on average, only about one-third that of foreign rivals.
Intel Capital invested $265 million around the world in 2005, around 60 percent of which went outside the United States, up from 40 percent in 2004.
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