China's venture capital sector is threatened by problems ranging from the lack of a suitable domestic stock exchange to curbs on international equity transfers, according to a report to be issued today by international consultancy Ernst & Young.

Beijing sees the creation of an effective venture capital system as essential for the long-term development of an advanced high-technology industry. But in spite of recent successes for VC-invested Chinese internet companies such as Baidu and Alibaba, the report says a recent fall in venture capital activity highlights shortcomings in the private equity environment.