China will promote greater use of equity crowdfunding for startups to encourage entrepreneurship in the world’s second-largest economy reported by Dominique Patton and Kathy Chen .
Up until now China has refrained from showing enthusiastic support for crowdfunding. BOP Associate Director, Conor Roche based in Shanghai explains, “A lack of clarity and a fear of reprimands from what might have been considered illegal activity has stalled development of equity crowdfunding in China. That appears to be about to change.”
Patton and Chen reveal a State Council document posted on the governments website called for expanding Chinese equity crowdfunding projects to help small companies raise funds as a “useful complement” to traditional equity financing while highlight the need to protect investors’ right and minimize financial risks.
Reports have highlighted some of the risks of the unregulated market. In January 2015, the CSRC (China Securities Regulator Commission) and Securities of China (SAC) published draft regulations for equity crowdfunding in China.
Cook explains, “ The draft regulations indicate that the Chinese government intend to establish an accredited investor model of equity crowdfunding similar to that found in the US. It’s not quite the crowd but allowing the growing middle and wealthy classes to invest is certainly a step forward.”
Under China’s proposed rules, an equity crowdfunding platform would have to be a Chinese company or partnership with a local firm, have net assets of about £500, 000 and register with the SAC. It must carry out due diligence on investors and the companies seeking finance.
Investors would have to invest at least £100, 000 in a single project to be able to participate.
With most Chinese banks unwilling to fund startups, crowdfunding has already seen rapid growth. With over 30 crowdfunding sites already operating in China, World Bank research suggests Chinese crowdfunding could be a $50 billion industry by 2025, accounting for half of the developing world’s crowdfunding.
ShareIn co-founder and chief executive Jude Cook said, “this is fantastic news for crowdfunding and we believe it will really open up financial trade routes between the UK and China. This is perfectly timed for us to maximise on the huge market opportunity there.”
BOP is currently working in partnership with ShareIn to build the first equity crowdfunding solution for the combined Chinese and UK markets.