Chinese return from overseas to start companies

San Jose Mercury News

TIANJIN, China — This city in northeastern China is a long way from Sand Hill Road, home to the world’s greatest concentration of venture capitalists.

But a deal too good to pass up led Yong Li to leave his family in Palo Alto, Calif., a few months ago and head here to pursue his dream of starting a company, with backing from an unlikely source — China’s newest capitalists, its communist leaders.

“The government is rolling out the red carpet,” said Li, who rides a rickety bicycle through an open-air market every morning and evening, grabbing wok-fried meals on his way to building TerraBay Pharmaceuticals, which is working on a treatment for lung cancer. “The government takes the risks. And there are almost no strings attached.”

China has quickly grasped the fundamentals of Silicon Valley innovation: Daring investments in aggressive entrepreneurs create world-changing companies. Officials across the country are luring back Chinese-American technologists and executives — many from Silicon Valley — in hopes of seeding an entrepreneurial culture that they hope will someday create world-class companies. As the U.S. economy sputters, provincial officials are finding a receptive audience on tours to the Silicon Valley area and other parts of America.

Silicon Valley has long been a global revolving door for the bright and ambitious who use experience gained at successful startups and companies as a springboard to launch new careers in their homeland. China’s efforts to entice star talent to return, though, represent a new wrinkle. It is tapping into the anxieties of Chinese professionals who increasingly feel the valley is a professional dead-end.

“We were able to get funding in the valley, but the fund collapsed,” Li said. “So we ended up with nothing.”

He now represents a wave of highly skilled immigrants flocking back to their homeland, which poses a threat to the Silicon Valley’s innovative culture, said Vivek Wadhwa, a researcher on immigration and labor issues at the University of California-Berkeley. Others, though, see such movement as yet another strength of the region; those who return to their countries of origin to start companies frequently come back to set up research offices, as Li plans to do should TerraBay succeed.

Evidence of China’s projected 8 percent-plus economic growth amid the global downturn is easy to find in Tianjin, a city of more than 11 million. Its skyline is clogged with construction cranes converting former rice fields into technology parks and high-rise office buildings.

Talent-poaching has picked up in recent months as Chinese officials descend on Silicon Valley on a regular basis. Government representatives have deep pockets, offering seed money of up to $1 million (which goes much further in China), rent-free offices and labs, favorable tax benefits, assistance in cutting through red tape and other goodies to those with business plans to their liking.

The experience of Li of TerraBay reflects the sour venture funding picture in the United States; 2009 could be the leanest year for investments since the dot-com collapse. Li and his co-founder, Hui Zhao, have now received commitments of up to about a half-million dollars and other forms of assistance from government agencies for their pharmaceutical company, whose lung cancer work would address a pressing problem in China, with its culture of smoking. They have joined hundreds of other overseas Chinese who have returned to Tianjin, according to local officials.