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Equity Crowdfunding in China

BOP China Associate Director Conor Roche with the latest on equity crowdfunding.

Last month I had the pleasure of hosting a workshop with this year’s cohort from the Berlin School of Creative Leadership, who were in Shanghai on an Asian fact-finding tour. The topic of the workshop was equity crowdfunding for the arts and cultural industries, with a focus on related policy in China.


Equity crowdfunding is at a very nascent stage of development in China. Unlike in the UK and the US, there is no specific policy regarding the use of the internet as a means of selling equity in a private business to the public. There are strict rules regarding ‘illegal fund-raising’ online, primarily focused on peer-to-peer loans and stopping fraudulent lenders. Yet to date, in mainland China there are no equity crowdfunding platforms, and it’s arguable that the lack of a clear policy (and consequent fear of government reprisals from what might be deemed illegal activity) has stalled development in this area.

The World Bank estimate the size of the Chinese crowdfunding industry, by 2025, will be US$50 billion (see World Bank, ‘Crowdfunding’s Potential for the Developing World’, 2013). While this estimate includes all types of crowdfunding, it illustrates the scale of the market potential in China.

The government and major technology companies are very aware of the potential of equity crowdfunding to jump-start a new entrepreneurial ecosystem. A financing platform launched earlier this year by Alibaba called Yule Bao, enabled Alibaba users to indirectly invest money in a range of projects from games, movies, and TV shows. Alibaba stressed that Yule Bao was not a crowdfunding platform as Yule Bao raises funds from selling insurance products to users, the funds are then subsequently invested.

A recent report in webzine China Daily suggested that the China Securities Regulatory Commission (CSRC) is set to implement regulations. This follows what the CSRC described in a related press release last month as an ‘in-depth research and survey’ of the equity crowdfunding industry:

‘Lately, we at the Commission have carried out in-depth research and survey regarding the equity crowd funding industry. At present, based on overseas regulatory experience and the results of the research and survey, we are dedicated to developing a set of regulatory rules for crowdfunding financing.’

Full text of the press release is available here.

In addition, in recent conversations between BOP China and representatives from the Shanghai Free Trade Zone (SFTZ), we understand one of the main purposes of the SFTZ is to provide an opportunity for innovation in financing, nationally and internationally and this includes opportunities for equity crowdfunding.

So what does this mean for the arts and cultural industries?

While weak intellectual property protection in China can dissuade people from posting their ideas online, reward-based crowdfunding is already very popular amongst filmmakers and creatives.

Demohour, one of two of the most popular reward-based crowdfunding platforms (the other Dreamore) raised Y1.6 million (about US$260,000) for a cartoon movie named Big Fish and Chinese Flowering Crabapple. 3596 users backed the project. The most supported project on Demohour, also amovie called A Hundred Thousand Bad Jokes, raised Y1.3 million (about US$210,000) from 5,533 users. (Source: World Bank, ‘Crowdfunding’s Potential for the Developing World’, 2013).

Beyond China, a mature reward-based crowdfunding market has typically preceded equity crowdfunding, and China looks like it will follow this trend. That is good news for the arts and cultural industries, where equity crowdfunding has the potential to raise significantly larger amounts due to the potential financial returns for investors.

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BOP China are actively exploring opportunities for UK businesses in China, we would be very happy to hear from anybody who has experience in this space.

Slides from the workshop with the Berlin School of Creative leadership are available to view above, or here.

This workshop followed a piece of research I was involved last year to explore the potential for equity crowdfunding for the arts and cultural industries in the UK. This research led to the establishment of Culture Crowd, an equity crowdfunding for the arts and cultural industries research and lobbying group. A report outlining our findings from the research is available from the Culture Crowd website here.

conor@bop.co.uk

twitter.com/conorroche