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Conditions Ripe for China to Expand Private Equity Funds
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A veteran Chinese banker believes conditions are ripe for China to expand its private equity funds (PEF).


The sentiment was expressed by 77-year-old Liu Hongru, vice chairman of the Committee of Economy of the Chinese People's Political Consultative Conference (CPPCC), while addressing Thursday's PEF summit in Xiamen, east China.


"I believe the demand and conditions for China to develop PEF have been formed," said Liu, who served as the first chairman of China Securities Regulatory Commission (CSRC) between 1992 and 1995.


Legislation has been improved, with a host of laws and regulations having been revised and promulgated in recent years, such as the Corporate Law, Securities Law, Provisional Measures on Business Investment and Enterprise Administration, which has helped lay a legal foundation for the expansion of PEF in China, Liu argued.


The capital market in the country has been improving, operations have become more standardized and the split equity structure reform has been completed, making it possible for all shares of listed companies to be tradable on the secondary market, he continued.


Along with the fast expansion of China's capital market in recent years, plenty of international PEF organizations have been attracted to China for investment purposes, which has in turn promoted the development of some Chinese businesses, he said.


Liu was supported by Chen Zongsheng, chief of the preparatory group for the Bohai Industry Investment Fund, but Chen emphasized the existence of six major difficulties or problems facing the expansion of PEF in China.


He stressed the impact of the delay in the promulgation and implementation of the Partnership Enterprise Law, which was adopted by the Standing Committee of the National People's Congress (NPC) of China last year, but did not become effective until June 1 this year.


Other problems he outlined included the restrictions regarding participation of overseas investment in partnership organizations, management over remittance of hard currencies into China and a lack of experience on the part of fund management companies in China.


He also highlighted state-owned enterprises' worries in participating in PEF, as well as the negative impact exerted by the rigid PEF registration and approval system, and illegal fund raising.


"The development of PEF in China will be even faster than expected if these barriers are removed," said Chen.


Bohai Industry Investment Fund, the first of the kind, was launched in Tianjin on Dec. 30 last year, with start-up capital of six billion yuan (US$770 million). The fund will reach 20 billion yuan within 15 years and provide easy access to funding for small businesses and firms in the modern, manufacturing and high-technology fields.


A report on the study of PEF in China, which was patronized by three organizations including Xiamen University, was released on Thursday.


According to the report, international PEF organizations were involved in 129 cases of investment in the Chinese mainland last year, with a total value of US$12.97 billion.


Asia-based PEF organizations invested US$7.56 billion in China in the first quarter of the year, up 329.5 percent from a year ago. It is expected that the size of PEFs will be kept around US$10 billion.


The PEF summit served as a prelude to the 11th China International Fair for Investment and Trade which is scheduled to open in Xiamen, a port city in Fujian Province, on September 8.


(Xinhua News Agency September 6, 2007)


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