China overtook the UK as a destination for venture capital investments last year and is set to surpass Europe as a whole within the next two to three years, research has found.

China's venture capital market is growing at more than three times the rate of the UK, according to the report by Cambridge-based Library House. At £1.4 billion, China became the second-largest country for venture capital investment in 2006, behind the U.S. with around £14 billion.
India, with a growth rate of about 90 percent, is likely to push the UK down to fourth place by 2009.
Even so, the UK saw a dramatic rise in venture capital investments, of 27 percent, to just under £1.4 billion last year.
3i Group was the top investor measured by deal value, while in terms of activity the venture capital funds managed by Scottish Enterprise topped the investor league.
The fastest-growing sector for investors was services and retail, with investments up 91 percent by value between 2005 and 2006. This increase makes it the largest sector in the UK venture capital market.
Investment in IT grew by 42 percent, the second-largest increase across all sectors.
""The rise of China and India poses a growing challenge,"" the study warned. ""Although the UK attracts over twice the amount of venture capital per capita than the rest of Europe, it attracts approximately a third of the amount of the U.S.""
It added: ""In the face of rapid growth in Asia and the continuing dominance of the U.S., further steps are needed to maintain the UK's place near the top of the global venture capital league.""
The report, commissioned by UBS Wealth Management, forecast that venture capital investment in the UK could fall back to between £1.2 billion and £1.3 billion in 2007.
(Source: The Guardian