Overseas investors coming to China seeking opportunities should keep it in mind. This can be reflected in several trends in China's use of foreign capital.

For one, China is likely to unify the corporate income tax between local and foreign companies in 2007, requiring foreign funded companies to pay a tax rate of 25 percent instead of the original 15 percent.

For another, China's main share index climbed over 130 percent last year, stealing the thunder of stock markets around the world, and providing a more attractive capital market for domestic companies to raise fund as alternatives to overseas listings.

Also, the Chinese government issued new rules on foreigners' merger and acquisition (M&A) deals last year.

All this adds up to foreign investors facing a new truth: China is bordering on an age of capital surplus after decades of economic development. It has said goodbye to the old times, when lack of capital to nourish its development had to be supplemented by the introduction of foreign funds.

Even for small-and medium- sized enterprises that once found it difficult to get capital, they are turning more to domestic markets rather than foreign funding.

The shift away from foreign funding is shown clearly in the new M&A rules released by the Ministry of Commerce (MOC) on August 8.

MOC, together with the China Securities Regulatory Commission (CSRC) and four governmental bodies, jointly issued a rule called the "Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises."

The new M&A rules, also called by industry insiders the "Rule No10," has impacted the domestic venture capital industry, and especially local companies' trying for offshore IPOs, which has been seen as a way for most of the venture capitalists to exit from their portfolio companies.

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