China to force out 2,000 private asset management companies

China’s regulators are tightening supervision over its 5 trillion yuan private fundraising industry as rising cases of fraud and defaults in the nation’s asset management sector threatens financial and social stability.

More than 2,000 private fundraising and management organisations, essentially asset management companies managing private investment trusts and functioning like hedge funds, will be forced out of the market after the Labour Day break, said the China Securities Regulatory Commission (CSRC) and the Asset Management Industry Association of China (Amac), a self-regulatory organisation under the CSRC, last week.

The authorities have not specified when the clean-up will be completed but the Amac had said in an earlier statement these companies could reclaim their qualifications after they meet the compliance requirements.

Meanwhile, the Amac has been strengthening registration requirements and held its first nationwide qualification exam for private investment funds practitioners late April. All fund managers and senior managers of fund companies will have to pass the exam this year or will be barred from raising money for private funds from next year.

Song Qinghui, a prominent economist based in Beijing, said fund regulators have initiated stringent measures to rein in emerging risks in a sector developing too quickly.