Private equity remains unregulated under China’s new fund law

Revisions to the legislation have been under discussion for years, especially since the launch of China's second board for start-up companies in 2009, which significantly increased local appetite for pre-IPO investments through private equity funds.

Under the new rule published by the National People's Congress, regulated vehicles will include private funds that are offered to 200 or fewer qualified investors and which trade in publicly shares, bonds and fund units.

"Whilst the consultation draft provided that private funds could invest in both listed shares and unlisted shares, the new fund law no longer contemplates investment in unlisted shares by private funds," said Linklaters. "Hence PE/VC, which generally invest in shares of unlisted companies, will remain outside of the scope of the new fund law."

Wu Xiaoling, vice-chairman of the National People's Congress' financial and economic affairs committee, told the 21st Century Business Herald that the disagreements among different regulators - including the National Development and Reform Commission (NDRC) and the China Securities Regulatory Commission (CSRC) - are the main reasons of omitting private equity from the legislation.

"As a department under the State Council, should one focus on China's macro development or some trivial political matters? I believe these power struggles impacted the final draft to a very great extent," she said.

China's private equity funds are currently regulated by the NDRC. If the asset class was included in the new fund law, the CSRC would have become the primary regulator for future investments.

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• Topics
• Greater China
• Regulation
• CSRC
• China
• regulation
• NDRC