UPDATE 1-China's Hangzhou city plans $730 mln industrial fund

(Adds Mayor's comments, details and background)

By George Chen and Helen Ding

HANGZHOU, China, July 9 (Reuters) - China's Hangzhou city plans to set up a 5 billion yuan ($730 million) fund to invest in industrial projects and a 560 million yuan venture capital fund to support high-tech and Internet startups, its mayor said on Wednesday.

Hangzhou Mayor Cai Qi said 5 billion yuan was the target for the initial phase of the Qian Jiang Industrial Fund, adding that the government of the eastern Chinese city would continue to raise funds after completing the first phase.

The city has been in touch with more than 20 private equity houses that may become partners in the fund, he added.

The Qian Jiang fund would make Hangzhou, a popular tourist destination about 200 kilometres from Shanghai, the third Chinese city to launch a yuan-denominated government-backed industrial fund.

"The government will steadily invest in a number of local projects and companies through the fund, and we warmly welcome global venture capitalists and private equity firms to participate in the fund," Cai told an industry forum.

The Tianjin city government in northern China won approval for the 20 billion yuan Bohai Industrial Investment Fund at the end of 2006 and Shanghai, China's financial hub, raised 20 billion yuan to launch its industrial investment fund earlier this year.

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