Shanghai surprised entrepreneurs when it issued a bold pledge to investors last February. Several government departments issued a joint document promising to repay up to 60 percent of the losses, or up to 6 million yuan ($880,000), incurred by any company on investments in Shanghai-based technology startups.

The move is part of the city's plan to become one of the country's main innovation centers.

Several departments of Guangdong's provincial government issued similar guidelines this year. They took effect in April.

The moves have raised eyebrows nationwide, with some people citing concern about wasteful spending.

Should government compensation be offered to encourage investment in technology?

YES

The incentives will stimulate growth.

1. Two key elements to technology startups' success are sufficient venture capital and risk-taking ability. The policies will attract venture capitalists.

2. Shanghai and Guangdong governments' promise of compensation is more of a gesture to instill confidence in potential investors. Since the compensation wouldn't be 100 percent, lots of investors would still operate with enough caution to ensure their own success.

3. Governments around the world offer similar plans, which are just other types of subsidies to attract investors.

NO

The plans go against venture capitalism's nature.

1. The promised compensation may give investors, especially less-experienced ones, a false sense of security. That'll negatively affect the investments' success.

2. It's inappropriate for the government to use taxpayer money to cover private investors' losses. Investors - not taxpayers - should be responsible for their own successes or failures.

3. The very definition of "venture capitalism" indicates that investments in seed companies or startups are risky. Shanghai's and Guangdong's governments will not attract real venture capitalists by offering to compensate their losses.

China Daily