Page 117 - How China Is Winning the Tech Race

The downside

Not everyone is convinced that China is a good place to put money. Higher-
quality deals, better-qualified entrepreneurs, and superior returns explain why
the United States remains the favored destination, according to a Deloitte &
Touche survey. China has many dangers, including the risk of political turmoil
and the possibility that Deng’s legacy of embracing capitalism may transform
into a less hospitable business climate. For business, continuity and consistent
rule of law are vital.
Asian-American Guy Kawasaki grew up in Hawaii and might be expected
to be a China evangelist, but no. When he isn’t writing books about
empowering entrepreneurs, Kawasaki runs Garage Technology Ventures, and
nearly all the 40 start-ups in his portfolio are in California. “Why would I
want to invest in China when venture capital is difficult enough in the United
States?” he asks.
It is a good question. Joel Dreyfuss, editor-in-chief of Red Herring maga-
zine, highlights 100 winning Asian start-ups each year, and 40 of the 2007 lot
came from China. But Dreyfuss says he sees more “me-too China businesses
that copy U.S. models and not all that many original ideas.” China, he adds,
still is seen largely as a low-cost
manufacturing center and a huge
market, not a research and devel-
“Why would I want to invest in China when
opment center. “I think it will be
venture capital is difficult enough in the
another 20 years before China United States?”
moves up the value chain and
Guy Kawasaki,
reaches critical mass in cutting-
managing director,
edge technologies,” he says.
Garage Technology Ventures
Even the biggest risk takers in
the Valley have backed off from
taking calculated gambles in
China’s hard-to-fathom legal and financial landscape. For starters, foreign
venture capitalists typically need to detour to a tax haven such as the Cayman
Islands and inject the assets of their Chinese start-ups in a WOFI (Wholly
Owned Foreign Investment) structure. This lets them take their portfolio com-

Silicon V alley’ s T ech Route to China 91