China issues PE regulation proposals

Amendments to China’s investment fund law will attempt to harmonise the country's fragmented private equity regulatory regime.

China is making changes to its Securities Investment Funds Law to bring private equity under the control of the country’s market regulator – the China Securities Regulatory Commission (CSRC).

The adjustments state that private funds with investments in securities, including non-listed shares, bonds and other forms of derivatives, will be subject to the law. 

The proposals aim to harmonise China's fragmented private equity regulatory regime that exhibits different cities operating their own systems. 

The national law will require registration with the CSRC or with the country's fund industry association if the fund is below a certain threshold – which has yet to be confirmed, or risk the CSRC prohibiting the fund manager from opening a securities trading account.

Upon registration funds will have to comply with the law's disclosure requirements, including filing information upon the completion of a fund raise. The assets of a fund must also be held by an independent custodian bank. 

The amendments provide clarity around how GPs can market their funds to investors, but more specific guidance around this area is needed, according to market sources. However it is expected that the definition of a qualified investor will include a minimum asset level requirement, minimum subscription amounts and an evaluation of the investor’s ability to understand and bear the risks involved. 

The National Development and Reform Commission (NDRC) were the first to try and standardise Chinese private fund regulation issuing circulars on how private equity enterprises should be formed, market their interests to individual investors, and managed, as reported last year by sister title PE Asia.

The NDRC requested registration, but there was no punishment for funds that didn’t register besides being named and shamed on the agencies website.