The China Securities Regulatory Commission (CSRC) published a regulation on the supervision and administration of private equity funds, the first administrative regulation of its kind in the country. The regulation, with 62 items in seven chapters, will be effective from September 1. The introduction of the regulation is conducive to improving the supervision system of private equity funds and the healthy development of the sector, as well as encouraging the sector to play a more important role in serving the physical economy and promoting scientific and technological innovation, an official said. In recent years, China's private investment funds sector has developed steadily. As of May 2023, there were 22,000 private equity fund managers registered at the Asset Management Association of China (AMAC), with 153,000 funds under management, totaling CNY21 trillion.
“Private equity funds have played an important and positive role in supporting entrepreneurship and innovation, increasing the proportion of direct financing, and serving residents' wealth management,” the official, representing the Ministry of Justice and the CSRC, said.
As of the first quarter of 2023, private equity funds had invested in nearly 200,000 listed or unlisted enterprises, the New Three Board enterprises and refinancing projects, with an equity capital of more than CNY11.6 trillion, according to CSRC. Meanwhile, private equity investment funds actively supported key scientific and technological innovation areas and national strategies such as computing, semiconductor, pharmaceuticals and biology sectors. As of the first quarter of 2023, private investment funds have invested nearly CNY5 trillion in these enterprises.
A manager at a Beijing-based private equity fund told the Global Times that “the introduction of this regulation is a good thing for the industry, as it means that the country attaches importance to private investment funds. In addition, the regulation can also help the industry develop in a more regulated and healthier way”. At present, some of China's private equity funds are conducting short-term speculative investments, which account for about 80% to 90% of the market share of private equity funds, Dong Dengxin, Director of the Financial and Securities Institute of the Wuhan University of Science and Technology, told the Global Times. “The new regulation clarifies special provisions on private venture capital funds, which is important to guide private equity funds to invest in technological innovations, as well as the transformation and upgrading of China's economy,” said Dong.
The CSRC said that it will promote the high-quality development of the funds sector and steadily lower the industry's fee rates. A number of fund management companies in China announced that they will lower the management fees of their equity fund products to no more than 1.2%, and custodian fees to 0.2%. Assets under management by Chinese public mutual funds totaled CNY27.77 trillion at the end of May. Meanwhile, a total of 10,890 public mutual funds were operated by 143 fund management companies, according to statistics from the AMAC. Of the 143 fund management companies, 47 are foreign-funded firms, the Global Times reports.
