News & Analysis

China regulators clash on PE registration

Just a month after the CSRC released its own private equity fund registration policy for public comment, the NDRC has come up with its own competing registration requirements.

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China’s National Development and Reform Commission (NDRC) has issued fund registration rules that conflict with those released last month by the China Securities Regulatory Commission (CSRC).

According to theNDRC's website, all funds with assets under management of RMB 100 million (€12.6 million, $16.1 million) or more will have to register with the provincial branches of the NDRC. Those with assets above RMB 500 million need to be reported by the provincial governments to the NDRC.

The NDRC rules clash with the CSRC's own rules issued in February about being approved as a “fund manager”. It stated that all funds that invest a cumulative amount of RMB 100 million in securities would have to register with a branch of the CSRC.

China’s provincial governments have been advised to issue registration rules for all investment funds, including private equity, and put them into effect by June 2013.

The NDRC also said it will classify any funds as “non-standard equity investment enterprises” if the funds do not file with the local governments or fail to meet requirements.  

One of those requirements, according to Mayer Brown JSM partner Yong Ren, is that private equity funds specifically cannot invest in public securities – which include bonds, shares, and mutual funds. However, most of China’s private equity funds are already invested in those areas and many had been preparing to make further investments, Ren said. 

“Private equity funds cannot fully get away from [public securities], because they need them for cash and exits,” said Ren. 

The appointment of Xiao Gang, the former chairman of the Bank of China, as the CSRC's new head has many industry sources encouraged that the government ministry will begin addressing their questions. 

However, the NDRC’s new circular has made it clear that private equity funds may not foray into securities, or they will be labeled “non-standard”.

“Both agencies want to have regulatory oversight over private equity funds, and now it’s going to be very hard for the funds themselves to comply with both,” Ren said.