China issues first national PE regulations

Provincial private equity rules now extend nationwide as China attempts to crack down on 'non-standard' practices

China has issued its first nationwide regulations governing private equity and venture capital funds, according to a statement from the country’s National Development and Reform Commission (NDRC).

The agency put forward a five-part series of regulatory requirements to ensure investors are fully educated about potential risks when giving capital to firms, as well as being able to bear the risk of any financial loss.

The measures, which PE Asia reported earlier this month, include mandatory registration of onshore funds and disclosure of fund information for review; rules restricting private equity firms’ efforts to market funds to the general public; strict enforcement of existing limits to the number of LPs allowed to participate in certain investment programmes. In China, private equity and venture capital funds must limit the number of investors in a fund.

Previously the measures applied only to six regions. 

The rapid growth of private equity in China has resulted in “some areas of illegal fund raising and other non-standard behavior”, the NDRC noted, and the regulations are intended to protect investors.

Fraud is growing concern in China as domestic private equity funds proliferate while the investor base is not mature. According to local reports, fraud is suspected at Huolimu Equity Investment Fund in Tianjin, which had raised about 1.6 billion yuan ($251 million; €189 million) from more than 5,000 people around China.