Shanghai will allow foreign investors to register as local equities investment firms, according to a government document obtained by Reuters.
Foreign investors, including private equity funds, venture capital funds, and hedge funds, with a focus on Chinese equities will be able to set up a Shanghai-registered entity with initial capital of RMB 100 million ($14.56 million; €9.91 million) or more with the legal status of a local investment company and receive special tax treatment, according to the document.
“With the rapid growth of China’s economy and expansion of domestic capital markets, private equity and other funds are also growing fast and helping companies to increase their value,” the document reportedly said.
Beijing and Tianjin have already won permission from the government to give foreign investment funds legal status. The change helps to put foreign firms on more equal footing with China’s growing domestic alternative asset industry. Currently, foreign investment firms in China typically register as consultants or representative offices.
During the past two years China’s domestic private equity industry has grown rapidly. Cities such as Hangzhou, Suzhou and Tianjin have launched their own funds targeting certain industries, and Goldman Sachs Gao Hua Securities head Fang Fenglei is said to be launching two funds as well.
The government has taken steps to foster the growth of both the foreign and domestic private equity industries in China. The Carlyle Group signed a memorandum of understanding with Shandong Province to “enhance trade cooperation and stimulate investment” in May. Regulatory bodies have also given local entities, including insurance firms and the country’s National Social Security Fund, permission to invest in private equity.