China's Silicon Valley becoming Internet finance breeding ground(2)

The technology hub has a history of nurturing both big and small companies with entrepreneurial infrastructure from venture capital to incubators. The area is populated by leading Chinese tech firms such as Lenovo and Founder and international ones like Intel, Microsoft and Google.

The district now boasts 566 equity investment firms and nearly 100 Internet-based financial service companies. These institutions have raised 20 billion yuan for small and medium-sized firms.

Authorities hope to take advantage of Zhongguancun's existing entrepreneurial and innovative culture and crank it up a notch to welcome financial service providers that can help channel critical capital via the Internet to cash-strapped but promising start-ups.

Internet-based financial services such as online lending have quickly risen as an alternative for small and medium-sized companies to raise much-needed capital to keep their businesses going, as Chinese banks are more inclined to lend to large and state-owned enterprises (SOEs).

Li Mingshun, founder of Haodai.com, an online platform that matches banks and micro-loan providers with small firms, said his clients were mostly small players whose financing needs range from tens of thousands to several million yuan. They are often ignored by banks that focus on large-bill credit to SOEs.

"Companies on our platform are exposed to a wide range of financing sources such as banks and micro-loan firms, and we help them match with the lenders that best serve their needs," Li said, adding that his website processes several hundred million yuan in loan demand each day.

"Internet-based finance will be a game changer in how we tackle liquidity problems," said Luc Lan, CEO of Angel Crunch, an online crowd-financing platform that allows investors to fund start-ups and get company equities in return.

"The online finance sector is changing fast and we need to work out a way to help companies raise capital in a fair and sustainable way," Lan added.

According to a study by China Business News, China had 200 online peer-to-peer lending firms by the end of 2012. A total of 16 such lenders tracked in the study extended 10 billion yuan in loans in that year. The sector will likely see explosive growth in the coming years.