Unless you have been dwelling in a cave, the China story remains the same: There's a tsunami of capital washing over the Great Wall amounting to nearly $1 billion weekly according to McKinsey & Company. In fact, the Asian Venture Capital, claims that new funds raised for the Asia region have risen nearly 38.7 percent in 2006, to $11.8 billion from $8.5 billion recorded at the same time last year. On the China venture capital side, the numbers for the first half of the year indicate that nearly $772 million was invested. In a report, released by Zero2IPO, a Beijing-based venture capital research firm, at the China Venture Capital Semi-Annual Forum 2006, current research indicates that 121 Chinese firms received venture investments, an increase from the first half of 2005 by almost 49 percent. It's noteworthy that the number of firms which received investments declined 17 percent from the 147 firms that secured venture funding in the second half of last year. The good news is that eleven new China funds were raised during the first half of 2006, with an average fund size of almost $90 million. To place these numbers in some perspective, examine this fact. At the end of 2005, there were over 233 mainland and mainland-related enterprises which received venture investments totaling nearly $1.05 billion.

Despite all the mainstream media hype about China venture capital, investments were down 16.7 percent from the 2004, when VCs pumped $1.3 billion into China, up 29 percent over 2003. However, this historical dispiriting news was offset by a $4-billion fund raised by mainland and foreign investment firms.

Overall, CVN sees some gradual evolutionary shifts in the overall policy development towards venture capital: new circulars continue to speed up the the administrative steps for start-up investment enterprises, there's progress in the exit channels for venture capital investments, an increased number of foreign VCs have entered the market and more expected before the end of the year, investments have concentrated on TMT and especially IT.

First quarter Thomson Financial numbers for 2006 reveal that China has secured nearly $225 million in new investment in 24 deals an impressive amount for what is normally considered a slack period in historical investment cycles. CVN expects to publish latest figures soon to be released from Thomson.

Red hot areas for investment in the first quarter, favor information technology investments, which garnered almost 63 percent of all Chinese deals in the quarter. Followed by consumer and business services, including search engines and even blogs.

CVN identifies Softbank, Doll Capital Management, Acer Technology Ventures, and JAFCO as some of the top foreign firms. The ranking domestic firms include IDG, CDH Investments, New Margin Ventures, Legend Capital, and Shandong High Technology Investment.

The typical fund size falls between $10 million and $50 million for these domestic firms, with the capital provided mainly by the government. Deals range between $0.25 million-to-$1 million range.

This influx of new venture funds reflects the pulling power of the 'China story, but does not pay enough attention to the regulatory stop signs found along the often bumpy Middle Kingdom roads. Nevertheless, CVN's conversations with tech companies, VCs and policy shapers appears to reaffirm that the Chinese authorities are committed to the widening the road for the new economy and entrepreneurship.