International Finance Corporation to back Internet technology in China

The private sector arm of the World Bank announces a shift in investment focus.

IFC associate director in Beijing Karen Finkelston has announced plans to increase the agency's exposure to the mainland ITC sector. Speaking at briefing to unveil an Information and Communications Technology (ICT) report sector in early March, Finkelston said ICT is playing an important role in the economic transformation of the Chinese economy and in promoting sustainable development.

IFC policy is to promote the private sector, which has traditionally suffered from a lacks of access to bank funding in Cihna. The report was funded by the Swedish International Development Cooperation Agency (SIDA) and co-written by Swedish consultancy Spintrack AB and BDA China Ltd.

The IFC has invested $1.5 billion in total in China, half through equity and half through debt. Finkelston said the IFC invested $400 million in China in 2004 and will likely invest the same amount this year.

So far, the IFC has focused on the manufacturing and financial sectors. The banking sector has also been a prime target, because the agency believes it can educate banks how to safely increase their lending to China's private sector.

Finkelston did not give any figures concerting the size of the IFC investment in the mainland ICT industry. But worldwide the IFC has invested $1.1 billion and plans to increase that by $350 million this year.

The ICT sector already benefits from a great deal of foreign interest. Venture capital provided $1.3 billion in investment to 253 companies last year, which also saw 24 VC-backed offerings that raised $4.3 billion in international markets. eBay, Amazon and Google have all made investments or acquisitions in China.

VC activity is dominated by foreign firms, which can benefit from the exit strategy of a foreign listing. Domestic listings do not offer an exit strategy to local VCs, since they are not allowed to sell their shares, known as legal person shares, into the A-share market.

The growth in China's ICT sector has been driven by the growth in the mainland telecom sector. China is now the largest mobile and fixed line subscriber market in the world with more than 330 million mobile subscribers and 310 million fixed line subscribers.

The Internet user population is estimated at 100 million. This consumer base has created opportunities for mobile data, online gaming, e-commerce and digital media. Many Chinese integrated circuit (IC) manufacturers are focusing on semiconductors used in mobile phone.

The mobile data sector has been especially active, with seven of the 11 foreign-listed tech companies operating in that area.

Software outsourcing is also a growing trend in China, thanks to government support, foreign investment and strong demand from Japan. However, it will probably be years before the Chinese operators match the Indian players in terms of size and profitability, the report concludes.