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CSRC might become sole regulator of PE, VC sector

By Cai Xiao (China Daily)

13:32, May 29, 2013

Industry insiders have welcomed a planned move to designate the China Securities Regulatory Commission as the sole regulator of the country's private equity and venture capital industry, as part of a major effort to standardize the sector.

The State Commission Office for Public Sector Reform, led by Premier Li Keqiang, is considering allowing the CSRC to regulate the PE and VC sector, the Securities Times reported on Tuesday.

The sector is now regulated by the CSRC and the National Development and Reform Commission, the country's top economic planning agency.

An official at the State Commission Office for Public Sector Reform told China Daily on Tuesday that discussions are being held to find a way to designate a sole regulator for the PE and VC sector.

"If this is confirmed, I think it's an excellent move. An industry that is investing with a long-term perspective in the Chinese economy needs a unified regulatory framework and regulator to bring stability and certainty into the market," said Andre Loesekrug-Pietri, chairman of the Beijing-based European private equity company A Capital.

He added that PE professionals in China make long-term decisions and need to feel that the regulatory framework is unified and stable.

The move is also timely as it comes at a point when the PE sector in China is going through a severe correction, with 40 percent fewer transactions and a 40 percent decrease in funds raised for China-focused funds.

"Initial public offerings are a main exit way for companies with investments from PE and VC companies, and the CSRC is appropriate for regulating them," said an insider familiar with the CSRC.

"The National Development and Reform Commission has regulated the Chinese PE and VC sector for many years. However, if the CSRC becomes the sole regulator, it will also be good for the sector, as it will become more standardized," said Shan Xiangshuang, the chairman of the CSM Group, a major Chinese PE company.

The NDRC is now in charge of the registration of PE and VC companies in China.

Liu Jianjun, director of the financial affairs division of the CSRC's Department of Fiscal and Financial Affairs, was responsible for the regulation of the PE and VC sector. Liu was transferred to the CSRC's fund department this month.

In February, the CSRC released a rule stating that PE and VC companies can apply for fund management businesses, which may be implemented on June 1.

But the NDRC also released a rule in March stating that PE and VC companies are not allowed to invest in public-offered funds.

Zhao Linghuan, chief executive officer at leading Chinese PE company Hony Capital, told China Daily that he is confident in the development of the asset management sector.

"We appreciate it very much that the CSRC released the rule encouraging PE and VC companies to participate in the fund management sector. While the government agency made our business area wider, PE and VC companies now have to choose whether to engage in the new business or not," said Zhao.

Zhao said that the new NDRC regulations indicate that an investment company can have branches doing PE and VC businesses registered at the NDRC, and other branches engaged in the asset management sector.

About 40 percent of PE and VC companies in China are interested in the Chinese secondary market and would like to participate in fund management businesses, according to a recent survey by the Zero2IPO Group.

The CSRC rules state that if the value of fund products in the secondary market of a PE or VC company is worth more than 100 million yuan ($16.3 million), then that company should be registered with the Asset Management Association of China.

Twenty-nine PE and VC companies are members of the Asset Management Association of China, and 10 of them manage assets worth more than 2 billion yuan, Zero2IPO said.

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