IBM and Lehman Brothers announced today that they are teaming up to create the China Investment Fund with an initial capitalization of US$180 million to drive the financial and business transformation of Chinese enterprises through innovative business practices and technology.

Each company will initially provide US$90 million. The fund’s investments will support the China central government’s policy that encourages companies to be innovative in business practices and management as well as in information technology and product development.

Unlike traditional venture capital firms that give early-stage companies money in exchange for an ownership stake, IBM and Lehman will focus on mid-stage to mature, public or private Chinese companies across many industry sectors. In addition to funding, IBM and Lehman will provide management and technology expertise to the companies in which they invest, enabling those companies to keep pace with the quickly evolving Chinese market.

China’s 11th 5-Year Blue Print (2006-2010), which encourages a company rather than government-driven innovation system, focuses on optimizing and upgrading traditional industries while developing high-tech industries such as information technology, communications, next generation networks, nanotechnology, biotechnology and an IT services sector.

“IBM has been working as an innovation partner to Chinese companies and the Chinese government for a long time,” said Henry Chow, chairman and chief executive officer, IBM Greater China Group. “This fund is an opportunity for us to utilize our experience in China and, as a globally integrated company along with Lehman Brothers’ investment management expertise, help facilitate the government’s objectives of transforming China’s enterprises.”

Michael Odrich, Lehman Brothers global head of private equity, said, “Lehman Brothers and IBM are highly committed to China and are excited about the investment opportunities the fund will have in this dynamic market. The fund will offer Chinese businesses access to investment capital as well as best practice technology and business strategies from two of the world’s most innovative global organizations.”