Tussle between China's regulators confuses GPs

As the NDRC and CSRC battle to become the chief regulator for private equity funds in China, GPs lack clarity on where to register their funds.

Private equity funds are still far from regulated in China and it is unclear which government entity will ultimately police GPs operating in the country, according to Shirley Xie, partner and Greater China private equity funds assurance leader at PricewaterhouseCoopers in Hong Kong. 

Speaking on a panel of China experts at the HKVCA China Summit 2013, Xie said, “We have conversations with both the CSRC and the NDRC, so at this point it is quite difficult to tell [who will emerge as the private equity regulator].”

China’s National Development and Reform Commission (NDRC) was historically widely accepted as the country’s regulator of private equity and asset managers.

However, in May, Chinese media reported that China’s State Commission Office for Public Sector Reform (SCOPSR) was expected to make the China Securities Regulatory Commission (CSRC) the sole regulator of private equity and venture capital firms. 

The NDRC even has rules that say if you register with them you shouldn't even participate in secondary market activities… That kind of goes against the concept of [being] an asset manager

Signs that the CSRC will take over from the NDRC include a draft guidance brought out by the CSRC in October 2012, requiring private equity funds to register with the regulator in order to raise capital.

Nevertheless, according to the panelists, the NDRC remains the more common entity for private equity managers to register with, although they said the CSRC has received registration applications from more of the local private equity players in China. Some GPs have also registered with both. 

Xie believes, however, that the NDRC is more of a policy-maker and has less ability to practically implement and enforce policy – something the CSRC can do. 

“Right now, the NDRC is not regulating the functionality of asset managers, but rather the upstream – the LPs to the fund and their client policies. Less so on how a fund manager should act, what sort of market it should go into.” 

“The NDRC even has rules that say if you register with them you shouldn’t even participate in secondary market activities – so you cannot raise mutual funds or public funds. That kind of goes against the concept of [being] an asset manager,” she said.

“Over the next 12 months, this is quite a good space to watch,” Xie added.