China promises clampdown on illegal PE fundraising

Huiman Yi, chairman of the China Securities Regulatory Commission (CSRC), noted that PE and VC activity has proliferated following the introduction of Shanghai's Star Market. At the same time, local groups are increasingly launching products "disguised as private equity" where they source capital from mainstream public market investors and deploy it in a variety of ways.

Yi said the CSRC would root out these “fake” private equity funds. It will also target managers that make loans rather than equity investments and embezzle fund assets.

“Private equity funds must return to the defined role of being private and supporting innovation and startups,” he said, speaking at an investment fund industry association event.

Planned measures include introducing a more detailed registration and filing regime for private equity funds, improving transparency and service quality across the industry, and encouraging the development of qualified private equity fund managers.

Yi noted that assets under management (AUM) within the domestic PE and VC industry stood at RMB12.6 trillion ($1.95 trillion) in July, a threefold increase from 2016. Of the RMB7.6 trillion invested, 33% went into early-stage start-ups, 28% to small and medium-sized enterprises (SMEs), and 26% to hi-tech businesses of unspecified size as of June.

"Since the registration-based IPO pilot system was introduced, more than 80% of companies listing on the Star Market and 60% of those listing on Chinext have received support from private equity and venture capital funds," Yi said. 

This is not the first time China's regulators have intervened to curb illegal fundraising.

The last concerted effort came in 2016 when the Asset Management Association of China (AMAC) - an industry body established by the CSRC - tightened registration requirements for managers in the wake of a wider peer-to-peer lending scandal that saw capital raised from non-qualified investors in the name of private equity.

This was followed by a clearer definition of how investors could qualify to participate in funds, a data-based risk control system to monitor the industry, and coordination with local governments on enforcement. Later in the year, AMAC canceled the registrations of more than 10,000 domestic private fund firms.

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• Topics
• Greater China
• Regulation
• Fundraising
• Renminbi fund
• China
• CSRC
• regulation