Foreign capital is promoting many small high-technology companies in China, despite concerns about intellectual-property protection and government regulation in the Chinese technology industry, according to a new report released by a World Bank affiliate.

Last year, foreign venture-capital investors brought nearly $1.3 billion into 253 Chinese companies, including a number of start-up businesses specializing in technology and telecommunications, according to a report released in Beijing by the International Finance Corp. The dollar amount invested increased 28% compared with the previous year, while the number of deals rose 43%, the IFC said. The report, financed by the Swedish International Development Corporation Agency, was based on a study held by two consulting companies: Sweden’s Spintrack AB and BDA China Ltd. of Beijing.

Financing plays a significant role in the country’s economy since China has no substantive domestic venture-capital industry to finance promising information-technology companies. The growth of such companies can "play an important role in the economic transformation of the Chinese economy and in promoting sustainable development," said Joseph Solan, senior manager of the World Bank’s global-information and communications-technologies department.

The report also warns investors of corporate-governance practices at Chinese companies, emphasizing that another big problem is government regulation. The IFC report specifically mentioned the Chinese government’s recent restrictions on companies providing entertainment and data services over wireless phones. The crackdown, aimed at improving shoddy billing practices and putting an end to pornographic content, caused a drop in sales at many Chinese Web companies.