Unprecedented regulation of China’s privately offered funds officially ‘elevates’ US$3 trillion sector critical to the economy, tech innovation

Regulatory framework signed off by Premier Li Qiang signals an elevated status for the industry, more detailed rules ahead, Shanghai fund manager says

New rules that cover both funds investing in listed companies and private-equity funds focused on unlisted start-ups are effective from September 1

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A street in Shanghai is reflected in a window. The opening-up and reforms of China’s capital markets have fuelled a boom in the private investment fund industry, which raises money only from wealthy investors instead of the public. Photo: Bloomberg

Published: 3:45pm, 10 Jul 2023

“Milestone” rules governing China’s private investment funds will inject more vigour into the 21 trillion yuan (US$2.9 trillion) industry, by officially acknowledging an industry that is playing an increasingly important role in supporting the economy and technological innovation, fund managers and analysts said.

Premier Li Qiang’s signing off on the first set of rules overseeing privately offered funds made headlines over the weekend. The 62-clause regulatory framework, which covers both funds investing in listed companies and private-equity funds focused on unlisted start-ups, is effective September 1 and runs the gamut from the responsibility of money managers, fund sales and operators to supervision management.

The sweeping rules represent the latest effort by Premier Li and his new government to tap the vast pool of private funds – previously an unregulated area – to revive growth and widen funding access for technology companies. Downside pressure on China’s economy has been piling up, with the latest data showing that producer deflation deepened and the United States set to impose more sanctions to curb the Asian country’s hi-tech industries. On the other hand, more regulatory control is expected to better protect the interests of fund holders and defuse any risks that could roil China’s financial system.

“Private funds have been officially included in [China’s] regulatory supervision,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “We’ll see more detailed rules going forward to regulate the industry’s information disclosure and marketing [practices], etc for more transparency. It also signals an elevated status for the industry, which used to operate in the grey and, to some degree, unregulated area.”

The sweeping rules represent the latest effort by Premier Li and his new government to tap China’s vast pool of private funds to revive growth and widen funding access for technology companies. Photo: AFP

The opening-up and reforms of China’s capital markets have fuelled a boom in the private investment fund industry, which raises money only from wealthy investors instead of the public. Over the past decade, the combined value of China’s onshore stock markets has more than tripled to US$10 trillion. The industry hosted 22,000 firms that managed 153,000 products by the end of May, according to official data from the China Securities Regulatory Commission (CSRC).

A slew of star money managers have left mutual-fund firms to tap opportunities in the burgeoning industry by setting up their own firms. The most prominent one is Wang Yawei, who founded Qianhe Capital in Shenzhen in 2012 after quitting China Asset Management the same year.

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