China will promote greater use of equity crowdfunding for startups to encourage entrepreneurship in the world’s second-largest economy, a cabinet document said on Saturday.
China’s leaders have repeatedly said they want to promote more entrepreneurial activity in the state-dominated economy to stimulate employment, a top priority as the economy slows.
While they have pledged strong support for online business, however, they have until now generally refrained from showing enthusiastic support for crowdfunding.
A State Council document posted on the government’s website called for expanding equity crowdfunding projects to help small companies raise funds as a “useful complement” to traditional equity financing while underlining the need to protect investors’ rights and minimise financial risks.
With most Chinese banks unwilling to fund startups, crowdfunding has already seen rapid growth, helped by new platforms set up by e-commerce giants such as JD.com.
Crowdfunding is also being used by large companies as funds from traditional channels dry up. Dalian Wanda Group, China’s largest commercial property developer, said in June that it raised 5 billion yuan ($784 million) from investors online and that it would continue to raise money from the public.
But reports have highlighted some of the risks of the unregulated market. A Beijing court earlier this month ordered a restaurant in the capital to pay a fine of 15,000 yuan for deceiving public investors about its intended use for 700,000 yuan raised online, according to a local media report.
The cabinet document give no details about how to address risks but promised that the government would grant easier market access to startups by cutting red tape.
It also called for the development of third-party credit rating services and a standardised system for collecting, evaluating and sharing credit information.
China’s securities regulator said last month that it would soon begin inspecting online equity financing platforms to address risks from illegal activities in online equity financing platforms.
Under draft rules drawn up by the Securities Association last year, equity crowdfunding projects must have no more than 200 investors. Investors must have at least 3 million yuan in financial assets or 500,000 yuan in annual average income for the previous three years.
China could account for half of the developing world’s crowdfunding by 2025, or $50 billion, according to a World Bank forecast.
($1 = 6.3737 Chinese yuan renminbi) (Reporting By Dominique Patton and Kathy Chen; Editing by Edmund Klamann)