A leading Chinese banker says China should make greater efforts to develop private equity funds.
Addressing the ongoing First China International Private Equity Forum held in Tianjin, Wu Xiaoling, vice governor of the People's Bank of China (PBOC), the country's central bank, said a multiple-tier capital market including private equity funds was urgently needed in China.
She said the country's capital market has "two soft ribs" -- the corporate debt market and the private equity market.
Slow development of the corporate debt market made it hard for firms to optimize their debt and capital structure and an under-developed private equity market made it difficult to provide resources for good listed companies, she explained.
Article 50 of China's Securities Law says that a limited liability company must meet two requirements in order to go public.
The total capital of the company should be no less than 30 million yuan, and public share capital should represent no less than 25 percent of the company's entire capital assets. Companies whose total capital exceeds 400 million yuan should make no less than 10 percent available for public subscription when going public.
"It is very difficult for companies to meet the two conditions, " said Wu, "so companies are well-advised to raise money on the private equity market before going public."
Wu believed private equity funds were a catalyst for upgrading the value of an enterprise.
She said that high deposit savings, improvements to the financial environment such as the state-owned stake structure reform, and improved laws and regulations had provided favorable conditions for the country to speed up the development of a multiple-tier capital market.
Wu believed the government should concentrate efforts on training high-quality administrative personnel to manage mutual fund companies, allow financial organizations to participate in private equity funds, and ensure that private equity funds have exit channels.
China has become a place of choice in the Asia-Pacific region for overseas private equity funds. Statistics show that by December 2006, investments by private equity funds in the Chinese mainland had reached 13 billion yuan.
Tianjin has been in the spotlight since March 2006 when the State Council, China's central government, approved a plan to locate the country's third financial center in Tianjin's Binhai New Area.
The other two are Shenzhen in south China's Guangdong Province and Pudong New Area in Shanghai.
(Xinhua News Agency June 8, 2007)