Anybody who believes the tech bubble has already been worked through needs to take a look at the venture capital industry in China. The funds were set up during two record years of funds raising in 1999 and 2000 but the collapse in tech valuations has caused many of the venture capitalists to sit on their hands.

China's difficult and regulatory environment has played a role in stifling growth. Venture capitalists need exit strategies like a drunk needs his whiskey bottle, and they are not clear-cut in China. Although regulations are moving toward allowing foreign funded enterprises to list on the domestic stock markets, it is not likely these will be effective for a while, according to Chris Southorn, the partner at McKenna responsible for the firm's venture capital survey in China.

"Even when these regulations do become effective, there will be a huge backlog of foreign funded companies wanting to list," he comments. Yetáheápoints out that there is a way for venture capitalists to get some return on their investmentá- by listing on the Growth Enterprise Market, whose extremely relaxed listing requirements and openness to Mainland companies makes the whole process a breeze.

"Chinese foreign funded companies which want to list on the GEM need a letter of no objection from the China Securities and Regulatory Commission and a legal opinion from a Chinese law firm. But the process is rather simple," he comments.

The listing is normally done via an offshore holding company. On the other hand, the GEM market has such a poor reputation following the collapse of Hong Kong-grown tech and Internet companies that perhaps only a very desperate venture capitalists would take that route, sinceáa company would pay a penalty in terms of valuation.

Indeed, some might argue that the GEM would be wise to avoid the kinds of venture capital investments going on in China, since the bulk are in the tech and internet areas which brought the GEM to its knees (from a high of 2000 to around 180 points recently).

The most popular sectors (by number of topáthree rankings) were telecoms, semi-conductors/electronic components, business/support services and internet technology/software. Another characteristic of VCs in China is their reluctance to get involved in startups. The overwhelming investment of choice is pre-IPO.

This risk aversion, so characteristic of the Asian VC industry, is doubly counter productive, since IPO opportunities are so difficult to achieve. Does this have something to do with the quality of the investment proposals VC companies receive from China's entrepreneurs?

Fully 40% of the respondents to the survey said the quality of the proposals they received contributed to their difficulties in China. It is hard to say whether this is a scathing reflection on local business people, or justification from the industry to hold onto large sums of cash without actually doing anything with it.

The destination of the funds also shows the lack of adventurousness within the VC industry. Shanghai and Beijing are by far the largest destinations for investments, with Shenzhen coming a distant third.

It is tempting to allude to China's history when it was sliced up by various foreign powersá- the Germans in Shandong, the Brits in Hong Kong and Shanghai, the French in Shanghai, and the Japanese ravaging the North East. Today a globalization has brought a more benign form of the same, with the Hong Kongers beavering away in the Pearl River Delta, the Taiwanese churning out stuff in the cut price provinces around Shanghai, and the Americans and Europeans investing in the priciest investment area of Pudong and Puxi.

Yet it is strange that Guangzhou receives such a small amount of VC investment. It is the capital of the richest province in China, with a GDP which passed $1 billion this year and led the charge during the early stages of China's opening up. Now, however, it seems to losing its share of investment dollars to the glamorous image of Shanghai, an image which the city government and foreign investment community has burnished to a dazzling shine.

McKenna's Southorn says this is because Shanghai and Beijing are China's most internationalized cities. "Investing in Guangzhou requires a more pioneering spirit," he comments.

The extent to which internationalization runs deep in Shanghai, and especially Beijing, is debatable, but is even more debatable whether it is wise not to be chasing up the opportunities in less high profile cities. Any visitor to cities like Shantou and Wenzhou will be refreshed and amazed by the amount of genuinely local wealth, generated by local enterprise and industry, rather than by foreign companies scattering dollars at random in an effort to exploit the China miracle.

Perhaps it is about time the foreign venture capital industry in China ceases to rely on the best recipe of investors in China. This seems largely to be confined to making money out of other foreigners, rather than exploiting the multiplying sources of local wealth in China. Like venture capitalists everywhere, VCs in China are sitting on mountains of cash.