gavinni.jpgFor venture capitalists, it seems the world can be neatly divided into two parts — China and everywhere else.

Despite the downturn, China continues to captivate the interest of VCs around the globe who increasingly see China as their engine for future growth opportunities, according to a recent survey on the global VC industry from Deloitte Touche Tohmatsu's TMT practice.

In contrast, VC interest in North America — traditional seen as the most VC-friendly market — seems to be decreasing due to the strained exit markets and the impact of recent government policies.

China is now the place to be if you are are a VC. This came though when DTT asked respondents about where they plan to increase their investments, and confirmed when they were asked which country has the most to gain in overall stature over the next three years.

China was a clear favourite among US investors with 42% of respondents believing that the country has the most to gain. Only 24% held that conviction for the US, followed by 12% for India, 5%for Brazil and 2% for Russia.

More than half of Asia-Pacific respondents were enthusiastic about China, while 20% looked at India as having the most gain, followed some way behind by Japan, the US and, surprisingly, Afghanistan.

Almost three out of 10 respondents from Europe (excluding the UK) see China as having the most to gain, followed by 16% who favour India. Finally, 35% of UK respondents eyed China as the clear winner, with India following at 24% and the US on just 9%.

But just why is there so much VC interest in China?

Gavin Ni, founder (pictured), president and CEO of Zero2IPO, a China-focussed VC research firm, said :

If you take a look at the short-term, you see China will be the first to emerge out of the worldwide downturn. China is projecting 7%-plus GDP growth in 2009 – the highest in the world. Then, looking beyond, you see a swelling middle class – but still a minority of the population – with money in their pockets to spend. That does not even scratch the surface of the eventual buying power of the largest population in the world – 1.3bn potential consumers.”

Can this love affair with China last? Ni believes it can:

A question I frequently get is whether China's recent growth in venture investing is sustainable. I would say 'of course'. I interact with China's entrepreneurs everyday. There is a real drive to win, and there's no stopping until the game is won. Others see the victory and want to win, too. And, the rules of the game from China's government continue to drive strong business growth.”

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