The "Matthew Effect," whereby the rich get richer and the poor get poorer, has been in full force within China's private equity market after a recent clearing of the private placement market.

Recently, the Asset Management Association of China updated its report on private equity firms after the clearing of the private placement market.

By the end of July, the number of listed private equity fund managers had decreased from 24,094 in June to 16,467, down 31.66 percent percent. Of all firms dealing in securities, equities, venture capital and other categories, securities and equities firms underwent the most severe clearing, with 35 percent of private equity firms removed. Accordingly, the number of practitioners was cut by 31.48 percent to 275,800.

By contrast, the scale and variety of funds have continued to increase. The variety of funds rose from 32,355 in June to 36,829 in July. The registered capital and paid-in capital increased from 6.83 trillion to 7.47 trillion yuan, and from 5.58 trillion to 6.11 trillion yuan respectively.

"Strict supervision is good news for lawful private equity firms, since market demand dictates that capital will flow to firms with core competitiveness, and the whole market will finally enter a healthy cycle," one industry insider commented. In July, one private equity firm issued 13 funds, while 24 firms released more than three funds. All these firms have long histories and sound records.

Given the current circumstances, large-scale private equity funds will likely continue to grow. By July, 400 fund managers were running funds worth 2 to 5 billion yuan, while 138 were operating funds with 5 to 10 billion yuan. There were 131 managers operating funds worth over 10 billion yuan.

On April 15 and 18, the Asset Management Association of China released its Administrative Measures for Private Placement Funds Collection and its Contract Guide, both of which came into effect on July 15. The new measures and guide clearly elucidated the subjects of private equity, investor qualifications and the process of private placement. For example, the minimum investment was given as 1 million yuan; the publication of private equity products and performance was prohibited; and investors were given 24 hours to withdraw their investments.