The US financial crisis is truly a global crisis now. It's infecting industries and countries that had little or nothing to do with the root cause of the crisis -- lax lending standards, over-leveraged investment banks, and poor regulatory oversight in the U.S. Indeed, despite very strong economic growth in China in recent quarters the China Venture Capitalist Confidence Index™ for the third quarter of 2008, based on an October 2008 survey of 14 Mainland China and Hong Kong venture capitalists, registered 3.25 on a 5-point scale (with 5 indicating high confidence and 1 indicating low confidence), to the lowest reading in the 3.5 year history of the Index that I write with my co-author, Ling Ding.

The credit crisis spread to the U.S. venture market early this year. The symptoms include a comatose IPO market since Q1 and, more recently, declining capital commitments. The crisis has now clearly crossed the Pacific to China's recently overheated venture market. In fact, it was only three months ago that I wrote in The Standard how some VCs in China . Well, that problem has been solved, but just like a Hydra, even though that head has been lopped off, two more menacing ones have appeared. The crashing Chinese exchanges have finally begun to close off the exit market for venture-backed enterprises, and capital commitments are down significantly. Naturally, this stress on the venture capital business model in China has made new investments harder to come by for entrepreneurs.

In our Q2 survey a VC respondent had this to say:

"While the China entrepreneurial environment has come a long way, the 'anything goes' style is unhealthy and unsustainable. In the short term you will see a lot of high valuations and so called success stories; this will build up into a false bubble with dire consequences."

These words appear to have been prescient, as the Q3 Zero2IPO China Venture Capital Report to 19 transactions in Q3 2008 versus 36 transactions in Q2 2008 and 35 transactions in Q3 2007.