An apparent shift in government policy that has unnerved investors in China is being viewed as a short-term blip by executives in Intel’s venture arm who met with reporters in Beijing on Tuesday.

Some investors have been rattled by a Chinese government regulation that would effectively make it more difficult for local companies to be listed on overseas exchanges.

Document 11, issued by China’s State Administration of Foreign Exchange (SAFE), disrupts the de facto route by which many companies go public. The process typically involves setting up offshore entities and pursuing foreign listings through them.

The Document 11 circular has short-circuited that process and sown much confusion by requiring specific government approval for investments in such offshore companies.

Some observers have blamed the chilling effect of the initiative, at least in part, for a 24 percent decline in China venture investments in the first quarter (see China VC Investment Down). But Intel venture executives, speaking to reporters on Tuesday, cast the issue as a temporary phenomenon.

“Our belief is that China has come a long way in terms of making the investment paradigm more and more friendly,” said Duane Kuang, director of Intel  Capital China.

“Every now and then we see bumps along the way,” he added. “We, along with other VCs, are actively trying to understand and clarify what the circular means and work with the government to resolve any possible issues. In the long run we believe the environment will be conducive for us to invest.”

Intel is holding its annual CEO meeting in Beijing—the first time the meeting has been staged outside the United States—in part to mark the company’s 20-year anniversary in China. On Monday, the company announced a hefty $200-million fund to support Chinese startups (See Intel’s $200M Fund for China).

In a reflection of China’s growing sway in the tech universe, Intel executives said this marks the first time the chip maker has judged a geography important enough to merit its own venture investment fund.

Intel has no plans to create similar funds for other emerging markets, said Arvind Sodhani, president of Intel  Capital.

Specially designated funds are unusual for Intel, which typically takes small minority stakes of less than $10 million each in private and some public companies. Last year, Intel  Capital funneled $130 million into about 110 deals worldwide.

Mr. Sodhani, who took up his post in March 2005, said one of his priorities will be to expand Intel Capital’s investments in emerging markets, as reflected in the latest announcement. “Emerging markets in general and China in particular are areas of focus for us,” he said.

Mr. Sodhani has already visited China twice in his first three months on the job.

Size Matters

The size of the new China venture fund reflects a “vote of confidence on the growth rate and the technology companies present” in China, added Mr. Sodhani. “It’s a vote of confidence on the management of a lot of the companies we’ve previously invested in. We have every confidence we will find companies to invest in over the years to put this $200 million to work.”

The latest fund is equal to the total sum of $200 million that Intel has invested in China and Hong Kong in the period since 1998. Executives declined to estimate how long it will take to draw down the fund.

The fund will invest in Chinese companies in the areas of cellular communications, emerging wireless broadband, digital home applications, and semiconductor design and manufacturing, according to Cadol Cheung, managing director in Asia Pacific for Intel  Capital.

In evaluating potential investments, Mr. Cheung said, Intel seeks companies in fast-growing markets with competitive technological advantages and strong management teams.

Though the fund seeks emerging companies with what Intel defines as “viable financial models,” the companies don’t necessarily need to be profitable at the time of investment, according to executives. Intel doesn’t disclose the return on investment for its venture portfolio.

‘Little Smart’

In some cases, Mr. Kuang noted, Intel has made strategic investments in technologies uniquely suited to the Chinese market, such as the relatively low-end limited mobility cellular technology Xiaolingtong, or “Little Smart,” which wouldn’t be appropriate for other markets.

“We don’t have a one-size-fits-all kind of investment profile,” Mr. Kuang said.

“Local usage models are going to develop and evolve,” added Mr. Sodhani. “The infrastructure buildout is taking place here very rapidly.”

In 2004, China was the second-largest market for Intel after the U.S., accounting for $4.65 billion or 14 percent of the company’s worldwide sales of $34.2 billion.