Officials Gather Feedback on Private Equity Rules

By Cheng Zhiyun
Published: 2008-11-19

From News, page 5, issue 393, Nov. 10, 2008
Original article:

China's National Development and Reform Commission (NDRC) was soliciting opinions from local private equity firms over recently drafted regulations for the industry.

An industry expert interpreted it as a move to solve a capital shortage in the economy, which has emerged as low value-added industries are trying to climb the value chain. 

Local private equity firms have operated in a legal grey area in China, with the NDRC only having officially approved only a handful of local funds and no regulations yet clearly dealing with the industry as a whole.

By passing the new regulations, the government was hoping to free up capital in Chinese financial institutions that had until recently laid idle, and pour such funds into the real economy.

The EO learned that the draft regulations clearly defined the permissible scope of private equity investment in China, saying such investment firms could buy shares, equity and fixed assets from unlisted companies. Besides that, they would be allowed to purchase from listed companies their privately issued and traded shares, equity assets, and public shares for merger and acquisition purposes.

In addition, the draft set in black and white a ban private equity firms investing in bank deposits, loan and futures derivatives, or China's secondary stock market.

A source who was close to the NDRC revealed that the agency would also adopt a more streamlined approval process for private equity firms applying for recognition.

Previously, private equity firms endured long waits for NDRC approval.

Since 2006 there have been 10 Chinese industry-focused investment funds - which in practice acted like private equity funds - recognized by the NDRC. Their working capital exceeded 140 billion yuan.

Up to recently, there were nearly a hundred other funds awaiting NDRC approval, the EO learned.