Li Qiang Signs State Council Order on Private Equity Investment Fund Regulations
Xinhua News Agency, Beijing – Premier Li Qiang of the State Council has recently signed an order, officially announcing the “Regulations on the Supervision and Administration of Private Equity Investment Funds.” These regulations will come into effect on September 1, 2023.
The Party Central Committee and the State Council have recognized the importance of developing and controlling risks in the private equity investment fund industry. Over the past few years, China’s private equity investment fund industry has experienced steady growth, playing a significant role in increasing direct financing and promoting economic development. The formulation of these special administrative regulations aims to legalize and standardize private equity investment fund activities, encouraging their healthy and regulated development, ensuring the protection of investors’ rights and interests, and further supporting the real economy and technological innovation. The “Regulations” consists of 7 chapters and 62 articles, focusing on several key points.
Firstly, the scope of application is clarified. Private equity investment funds, regardless of their organizational forms such as contractual, corporate, or partnership, fall under the scope of these regulations. It is stipulated that private equity funds must be managed by private equity fund managers or general partners for the benefit of investors, where these regulations are applicable.
Secondly, obligations for private equity fund managers and custodians are outlined. The circumstances in which private equity fund managers, as well as their shareholders, directors, supervisors, and senior managers, are disallowed are clarified. Compliance and professional training in line with regulations must be received by practitioners. Private equity fund managers are required to complete registration procedures with institutions designated by the securities regulatory authority of the State Council and adhere to specific requirements. Prohibited behaviors of shareholders, owners, and partners of private equity fund managers are also listed, alongside the responsibilities of private equity fund managers and custodians.
The third point is the standardization of fundraising and investment operations. Private equity investment funds can only be raised or transferred to qualified investors, with a limit on the number of investors in a single fund as prescribed by law. Private equity fund managers must match investment products with different risk levels based on investors’ risk identification and bearing abilities. Monitoring and supervision of private investment funds after raising them must also be strengthened. The scope of property investment and operational limitations for private equity investment funds are clarified, alongside stipulations on investment levels. The behavior of private equity fund managers and practitioners is also regulated.
The fourth point introduces special provisions for venture capital funds. The state provides policy support for venture capital funds to encourage their investment in growing and innovative start-ups. Coordination and cooperation between supervision and management policies and development policies are strengthened, conditions for venture capital funds are specified, and differentiated supervision and self-discipline management are implemented compared to other private equity investment funds.
Lastly, stricter supervision, management measures, and legal responsibilities are emphasized. Private investment fund activities must adhere to the guidelines, policies, and decision-making arrangements of the party and the state. The regulatory responsibilities and measures of the securities regulatory agency of the State Council are clarified. A coordination mechanism for sharing information, submitting statistical data, and managing risks in private equity investment funds will be established by the securities regulatory agency of the State Council in conjunction with relevant departments and provincial governments. Legal consequences for non-compliance with these regulations are clearly stated.
Premier Li Qiang’s signing of the State Council order indicates the government’s commitment to the development and regulation of the private equity investment fund industry. The “Regulations on the Supervision and Administration of Private Equity Investment Funds” are set to enhance transparency, protect investors’ interests, and foster a healthier investment environment in China.
[Responsible editor: Xu Kun]