NDRC plans simple registration procedure in challenge to foreign buyout firms Beijing plans to ease the approval of local government investment funds, a move that is set to fuel homegrown funds in an area dominated by foreign private-equity investors, say sources familiar with the situation. The mainland authority responsible for approving the establishment of such funds, the National Development and Reform Commission, has drawn up guidelines that are expected to be endorsed soon by the State Council. Under the guidelines, local governments will be granted approvals in principle to set up industrial investment funds through a simple registration procedure, rather than through the present complex and time-consuming review-and-approval process. 'The local governments just need to file their plans with the NDRC and they will get the green light,' said another source. 'It will make life much easier for city governments like Hangzhou to set up multibillion-yuan buyout funds.' To date, Beijing has approved only five yuan-denominated industrial funds as the central government has taken a cautious approach to nurturing the growth of domestic private-equity funds seeking to tap local buyout opportunities. By comparison, last year about 100 global private-equity funds were exploring the mainland market, investing a combined US$12.82 billion in 177 deals, said fund consultancy Zero2IPO. Global funds such as Carlyle Group and Blackstone flocked to the mainland in recent years as they looked for a share of the country's fast-growing economy. Mainland officials, worried about runaway investment and regional bias eventually undermining the sound development of the private-equity industry, took a 'go slow' approach in fund approvals. Another worry was that imprudent investment in such funds by local financial institutions might cripple the banking and insurance sectors. The latest guidelines will be just a first step, said the source familiar with the impending change. 'Other ministry-level agencies, including the banking and insurance regulators, will then draft more detailed rules governing the fund-raising.' Present conditions imposed by the China Banking Regulatory Commission and the China Insurance Regulatory Commission put limits on the creation of local private-equity funds. However, the source said the new guidelines aimed to remove these stumbling blocks. 'As long as the financial institutions can comply with the rules that may require an investment cap, they will be allowed an easy access to the private equity funds,' he said. Hangzhou is expected to be a major beneficiary of the new policy that could fast-track the establishment of the city's 5 billion yuan (HK$5.72 billion) Qianjiang Industrial Fund. However, some rival provincial and city-level governments are also eager to set up their own private-equity funds, including one 30 billion yuan fund designed to develop water treatment projects in western cities such as Chengdu and Xian. In late 2006, the mainland formed its first yuan-denominated private-equity fund, the Bohai Industrial Investment Fund in Tianjin, to focus on domestic buyout deals. Analysts said it was not yet possible to assess the fund's performance because of its short track record. Last year, Beijing approved five more yuan funds - the Shanghai Financial Industrial Investment Fund, Shanxi Coal Energy Industrial Fund, Guangdong Nuclear Power Industrial Investment Fund, Sichuan Mianyang High-Technology Industrial Fund and China-Singapore Hi-tech Industrial Investment Fund. 'China is now likely to see a swarm of new industrial investment funds being set up given the increasing zeal shown to the creation of a local private-equity industry,' Gavin Ni, chief executive of Zero2IPO, said earlier this month. 'Whether that is for better or for worse is an open question. We will have to wait and see.'