Report: Chinese securities firms to launch private equity operations

In what is the latest in a series of reforms in China's private equity sector, regulatory authorities seem set to allow securities houses to start private equity operations.

It is expected that eight more securities companies in China will be allowed by the China Securities Regulatory Commission (CSRC) to launch private equity operations, according to the China Securities Journal, newswire XFN-ASIA reported. As of now, CITIC Securities and China International Capital Corp are the only two securities companies that engage in private equity operations.

According to the report, the journal noted Wang Ou, a research official at CSRC, as saying that securities houses have applied to the regulatory commission to get approval to pursue private equity operations and that the commission expects 10 of them to be investing in private equity by the end of 2008.

The report added that China is also expected to allow foreign fund managers to set up Yuan-denominated funds in the country.

Two months ago, Chinese authorities allowed the Y516 billion ($75 billion; €48 billion) National Social Security Fund to invest up to 10 percent of its assets in to invest in domestic private equity funds that are not government-backed.

Chinese banks, insurance companies and securities house have wanted access to private equity for some time now. Earlier this year, the CSRC formulated draft legislation that allowed securities firms to make direct investments on a trial basis.

The impending decision to now allow 10 securities firm to invest in private equity is an extension of Beijing’s attempts to regulate and promote private equity activity in the country, both by allowing institutional investors to get access to the asset class, and by allowing the formation of more domestic private equity funds.