Finance sector tapped for yuan equity funds
Central bank eyes broader capital sources
The central bank said mainland lenders, insurers and pension funds should be allowed to invest in yuan-denominated private equity funds, broadening the funding sources for non-listed Chinese companies.
People's Bank of China deputy governor Wu Xiaoling said the move would enhance direct financing to companies and improve their debt structure.
Direct financing, including that from private equity, makes up only 10 per cent of total financing in the country.
Small and medium-sized companies have huge demand for such funds because of the difficulty in obtaining bank loans.
'Banks and insurers could invest 1 per cent to 2 per cent of capital in private equity, which will not affect their stable operation if the risk is well valued,' said Ms Wu at a conference in Tianjin.
She also said that regulators in those sectors should revise the regulations as soon as possible to encourage the move.
Gao Xiqing, a vice-chairman of the National Council for Social Security Fund, said long-term investing in non-listed companies would be perfect as the fund had to hold the money for at least 15 years.
Such a move would also diversify the risk of investing only in listed companies.
Total private equity investment in the mainland reached US$7.3 billion last year, more than double the figure in 2005. The figure for January to May this year was US$2.1 billion, according to the Centre for Asia Private Equity Research.
Financial institutions are banned from investing in non-listed companies. The China Insurance Regulatory Commission is still finalising rules on insurers' investment in venture capital funds. Other types of private funds include those that invest in mature companies with developed technology, private securities funds that invest mainly in traded companies and hedge funds which have a more active investing strategy.
Securities investment funds form the bulk of private funding in the mainland. Yet they have been long criticised for their secretive operations and yet to be legalised status.
Industry investment funds, mainly set up by the government, are limited, with only four operating.
Three of them, Sino-Swiss Partnership, Asean-China Co-operation Fund and Sino-Belgium Fund, were established to promote foreign relations.
The latest one, the 20 billion yuan Bohai Industry Investment Fund, was established to enhance direct investment.
Hedge funds are yet to develop in the mainland because of the shortage of financial derivatives.
The central government will launch a new rule on corporate partnerships that limits a partner's liability to the amount of his or her investment in the company.
The change would be helpful to financial institutions setting up private equity funds, Ms Wu said.
The government should also try to train more asset management professionals in both mutual fund management companies and private fund houses, she said.