The China Investment Fund will start with an initial capitalization of $180 million and target midstage and mature companies in several market sectors, including technology, financial services, biotech, and communications. Through the fund, IBM and Lehman plan to take minority stakes in both public and private sector Chinese companies.
In addition to providing working capital, the partnership aims to help companies in which it invests grow through the use of state-of-the-art IT systems and financial management techniques, drawing on expertise from IBM and Lehman Brothers managers. China's 11th five-year blueprint, the latest in the country's ongoing series of central planning initiatives, calls for Chinese businesses to become less dependent on the government for growth and innovation.
IBM sees in that an opportunity to steer the fund's portfolio companies toward products in its vast technology inventory--and away from offerings from rivals Microsoft and Oracle. "That's going to be the focus," says an IBM spokesman.
Indeed, IBM is counting on China to revive its top-line growth, which has been relatively stagnant for the past several quarters. With a gross national product that's expected to grow at 7.5% annually over the next five years, China is expected to become the world's third largest economy by 2010.
A spokesman for Lehman Bros. says the two firms could re-create the partnership in other geographies, such as South Asia and South America, if the Chinese effort proves successful.
IBM has a long history in China, beginning in 1934 when it first entered the country. It currently employs 7,600 workers in the People's Republic and operates a major research lab in Beijing. On Tuesday, the company is expected to announce plans to develop blueprints for corporate IT systems based on so-called service-oriented architectures from China. In the last 18 months, IBM has partnered with more than 250 private equity-backed startups in China.