UPDATE 1-China's Hangzhou city plans $730 mln industrial fund
(Adds Mayor's comments, details and background)
By George Chen and Helen Ding
HANGZHOU, China, July 9 (Reuters) - China's Hangzhou city plans to set up a 5 billion yuan ($730 million) fund to invest in industrial projects and a 560 million yuan venture capital fund to support high-tech and Internet startups, its mayor said on Wednesday.
Hangzhou Mayor Cai Qi said 5 billion yuan was the target for the initial phase of the Qian Jiang Industrial Fund, adding that the government of the eastern Chinese city would continue to raise funds after completing the first phase.
The city has been in touch with more than 20 private equity houses that may become partners in the fund, he added.
The Qian Jiang fund would make Hangzhou, a popular tourist destination about 200 kilometres from Shanghai, the third Chinese city to launch a yuan-denominated government-backed industrial fund.
"The government will steadily invest in a number of local projects and companies through the fund, and we warmly welcome global venture capitalists and private equity firms to participate in the fund," Cai told an industry forum.
The Tianjin city government in northern China won approval for the 20 billion yuan Bohai Industrial Investment Fund at the end of 2006 and Shanghai, China's financial hub, raised 20 billion yuan to launch its industrial investment fund earlier this year.
EMULATING ALIBABA
The Hangzhou government will also set up a 560 million yuan venture capital fund to support high-tech and Internet companies, Cai said, aiming to build up companies that could emulate the success of Alibaba.com Ltd (1688.HK), which is based in Hangzhou and is China's largest e-commerce firm.
Alibaba.com's parent company also owns Taobao.com, China's biggest online retailer by revenue.
"Now, we're looking for the next Alibaba and we believe there will be more Alibabas with the help of the government," Cai said. More Chinese cities are expected to launch investment funds to diversify risks and provide a source of low-cost funds for specific projects.
Hangzhou, the capital of prosperous Zhejiang province, has won strong support from the central government for its planned industrial investment fund, Cai said.
"Hangzhou wants to be a paradise for venture capital and private equity funds, and we are looking for the second and third Alibabas," Cai said.
The mayor added that the city government plans to set up an equities exchange as an exit channel for investments by foreign venture capital and private equity funds.
Global private equity firms such as Carlyle Group [CYL.UL] and Warburg Pincus LLC [WP.UL] have been rapidly expanding their investments in China to tap the country's double-digit economic growth and to diversify their holdings as the U.S. economy reels from a credit crunch.
Many Western firms have complained, however, that the going is especially tough in China, where private equity-owned companies face difficulties securing government approval for a public listing on the domestic stock markets, eliminating a key avenue used in other countries to exit investments. ($1=6.857 Yuan) (Editing by Edmund Klamann)
