By Wang Xu (China Daily)
Updated: 2007-01-24 10:22

Although venture capital investment in China rose to a record high in 2006, the spotlight seems to have shifted from the Internet sector to the so-called traditional industries.

In 2006, venture capitalists invested $1.78 billion in Chinese companies, up 52.1 percent year-on-year, according to Zero2IPO, a consulting firm focused on the venture capital and private equity sectors. The record high investment has made China the world's No 2 destination for venture capital after the United States.

Despite venture capitalists' enthusiasm for China, their interest in the Internet sector appears to be waning. According to Zero2IPO, venture capital investment in the nation's IT industry, mainly represented by Internet companies, accounted for only 59.6 percent of the nation's total in 2006, compared with 66.2 percent in 2005. Industry insiders said the decline was partly due to newly discovered investment opportunities in industries such as education and new energy.

"Every investor wants to find the next Suntech now, although few of them know about the alternative energy sector," said Don Ye, CEO of the China Environment Fund.

Wuxi-based solar power equipment maker Suntech went public on the NASDAQ in 2006, triggering a craze for China's new energy sector. Meanwhile, the NASDAQ debuts of Home Inn, a Chinese budget hotel chain, and New Oriental, a Beijing-headquartered English training school, drew venture capitalists to China's hospitality and education sectors.

"The enthusiasm for traditional industries is partly due to limited investment opportunities in Internet companies," said Garvin Ni, Zero2IPO's CEO. "In the past, venture capital firms have dropped hefty stakes in China's dotcom companies."

Web 2.0 companies appear to have been the only buzzword for China's Internet sector in 2006, as investors tried to find Chinese versions of Myspace and YouTube. In 2006, venture capital giants such as IDG VC and SAIF invested in BlogCN.com and Bokee.com, two leading blog service providers. Online video websites such as Wangyou.com and Tudoo.com also found backing from venture capital investment.