400 yuan funds seeking Beijing's approval

An increasing number of foreign and domestic so-called yuan funds are preparing to launch as the mainland's first regulatory framework for such funds nears completion.

About 400 foreign and domestic yuan funds are at the planning stage, of which 100 are expected to be approved, according to Kenneth DeWoskin, a director of Deloitte's China Research and Insight Centre.

He based his forecast on feedback from officials at the Ministry of Finance, sovereign wealth funds, banking and investment circles.

The yuan funds would provide an important new financing channel for China's small and medium-sized enterprises and make it easier for foreign firms to do equity investments on the mainland, DeWoskin said.

About 100 of the funds will be managed by foreign fund managers. 'By the end of 2010, yuan funds will be taking shape,' DeWoskin said. 'Most global funds that have previously invested in China are now in the process of setting up yuan funds.'

The funds planned to invest in a wide range of industries, including steel, renewable energy, property and retail, he added.

Deloitte, one of the Big Four international accounting firms, is providing financial services to help foreign companies set up yuan funds.

Funds in the pipeline include the Blackstone Zhonghua Development Investment Fund, the first such fund for Shanghai. This fund aims to raise five billion yuan (HK$5.69 billion), which will be invested in Shanghai.

Lee Kai-fu, after resigning as Google's China chief in September last year, plans to set up an 800 million yuan fund to invest in Chinese hi-tech start-ups, the China Venture Capital Association's website shows.

Beijing's plan is for yuan funds to invest in primarily domestic SMEs, which have difficulty getting financing from official channels.

'The [yuan] funds are a sign that China is diversifying the number of players in its capital markets, with more channels of capital into the Chinese economy. This is a huge leap forward,' DeWoskin said.

He said being able to operate such funds in China offered foreign investors several advantages.