Chinese companies received investment of just over £1 billion during 2006, up 53 per cent on the previous year.

Despite being overtaken by China, VC investment in the UK had a bumper year in 2006. It reached a total of £936 million, half as much as the rest of Europe put together.

Doug Richard, chairman of Library House, comments: ‘2006 has been a fantastic year for UK venture activity, yet the persistence of a gap between the vibrancy of venture capital in the UK and Europe versus the US suggests the existence of structural problems on this side of the Atlantic.’

The US remains the world’s largest VC market by a long way. It is roughly ten times bigger than the UK’s, and saw almost £14 billion invested last year. However, the Library House figures show growth in investment is faster in the UK: 13 per cent, compared to seven per cent in the US and virtually no growth in the rest of Europe.

The fastest-growing economy in terms of VC investment is India, which saw 87 per cent growth last year, according to the study.

Roger Franklin, senior analyst at Library House, tells GrowthBusiness.co.uk: ‘The argument used to run that China and India are low-cost manufacturing bases, which threaten economies based on engineering and industrial production.

‘This data suggests that’s not quite true. China and India have very high-tech businesses and people developing innovative technologies. They are not just chucking things out at a lower unit price.’