Overseas yuan gets nod in mainland PE market (2)

More flexibility

"Though not a 'game changer', the RQFLP program will be generally helpful in promoting the mainland PE market because it can provide more flexibility for PE industry players," PricewaterhouseCoopers Greater China Private Equity Leader David Brown told China Daily. "It is yet another example of many policy changes that we have seen that are favorable to the mainland PE industry," he added.

"The RQFLP will be a great step forward to attract capital into the mainland PE market by providing a good vehicle for PE funds to target those mainland companies by using the offshore yuan. As the PE investors will ultimately exit their PE investments through initial public offerings, this will present as a step forward to develop the mainland capital market as well," Ernst & Young Greater China Transaction Advisory Services Leader Bob Partridge told China Daily.

The launch of the RQFLP program means that Hong Kong can capitalize its offshore yuan financing center role in fostering mainland PE industry development. The city with its bureaucratic structure, taxation regime, PE professional talent supply and geographical proximity to the mainland will also help serve as a regional hub to contribute to the mainland PE industry development.

The mainland PE industry is flourishing in recent years due to the burgeoning economic growth in the country and the fact that mainland private enterprises and SMEs are deprived of funding by the mainland financing infrastructure which is geared heavily to lending to State-owned enterprises.

According to Asian Venture Capital Journal, PE fundraising activities on the mainland have grown exponentially recently, from $13.7 billion in 2007 to $38.8 billion in 2011.

Despite the booming growth of the PE industry, the mainland PE industry is fragmented with more than 10,000 venture capital and PE firms at the end of 2011, managing nearly 2 trillion yuan ($313.9 billion) in assets, according to National Development and Reform Commission.