Village fortunes

'Long and thorny path'

Nanling village reached a milestone last year as Hinova Pharma - a pharmaceutical firm it invested in - was listed on the Nasdaq-style STAR Market of the Shanghai Stock Exchange.

"Unlike previous years, leaders of Shenzhen's urban villages are now from the younger generations born in the 1970s or 1980s, and who have certain knowledge about stocks, venture capital and other financial matters. When property can no longer support their assets' sustainable growth, they have to think of other ways to make their collective capital produce good results. As a city known for its innovation and entrepreneurship, Shenzhen provides a fertile ground for them to experiment in this field," Zhang Yubiao says.

Despite the growing number of urban villages investing in the venture capital industry, those willing to take the plunge still account for only a small proportion of them. Besides Nanling village, Shangsha village in Futian district currently operates four incubators through its cooperative stock company. Shangsha village has also invested in more than 10 projects, including several in the venture capital field, according to local media reports.

"About 20 to 30 cooperative stock companies in Shenzhen have taken the bold step to venture into the highly risky field and become angel investors so far," Chen says, referring to entities that financially back startups in exchange for a piece of the business. "Another 50 to 60 are interested in participating, but are still adopting a wait-and-see attitude for various reasons, such as the lack of a professional investment team, differences in opinions in the companies' leadership, and difficulties in identifying a project they consider worth investing.

"Venture capital comes with high returns, along with high risks. It's important for villagers to be fully prepared for losses economically and psychologically," Chen says

A sound mechanism has yet to be set up to lay a solid foundation for the business, as there is still a lack of regulations and guidelines on how to deal with potential losses and assess liability, he says.

To reduce risks, some urban villages are collaborating with State-owned venture capital firms to become limited partners as the first step. Limited partners still have to bear the liability, but it cannot exceed the amount they have invested in the business.

Earlier this year, 11 villages in Luohu district teamed up with SZHTI Group - a State-owned company that provides asset management and financing services - in jointly setting up a 170-million-yuan private equity fund, with rural collective capital exceeding 100 million yuan.

According to Xu Zaokun, general manager of SZHTI, the company has a highly developed system and procedure for managing risks. "Rather than pursuing highly risky returns, we focus on the growth value of invested enterprises and make investments within a reasonable and manageable range," he says.

The government is also providing support to help hedge risks. The Luohu district government said it will offer up to 1 million yuan in subsidies a year for cooperative stock companies that have invested in venture capital funds established or managed by city-owned enterprises for more than a year. The financial support will last up to five years. In the exit stage, risk compensation capped at 3 million yuan will be granted to them if they do incur losses.

"It will be a long and thorny path, but an inevitable one for Shenzhen's urban villages to go into wealth management and investment. Although it's just the beginning for them, it's a significant move. There will definitely be hurdles, but they will grow and become stronger," Chen says.