China’s State Council has for the first time publicly issued guiding opinions targeting the private equity (PE) fund industry, with lawyers saying the new rules will significantly strengthen regulatory enforcement and companies seeking financing may face “growing pains”.
The General Office of the State Council issued the Guiding Opinions on Strengthening Regulation, Preventing Risks and Promoting the High-quality Development of Private Investment Funds (the Guiding Opinions) on 3 June 2026.
Widely regarded by the industry as a foundational policy document for the PE fund sector, the Guiding Opinions outline a systematic top-level framework for industry development and regulation, aiming to establish a long-term mechanism for stronger supervision and risk prevention.
New rules upgrade regulatory framework
Lin Jingu, a partner at the Beijing office of Kingland Partners, said: “The Guiding Opinions are not simply about tightening regulation, but represent a comprehensive upgrade and optimisation of the regulatory framework and governance structure for private funds.”
Once the new rules were implemented, “the securities regulator will become the primary supervisory authority, with enforcement capabilities and deterrence significantly strengthened”, he said. Companies should also be prepared to face growing pains as they adjusted to the new framework, he added.
A China Securities Regulatory Commission (CSRC) spokesperson said at a press conference that the PE fund industry remained “large but not strong, with an imbalanced fundraising structure; some state-owned funds are deviating from their intended functions, and shortcomings exist across the entire investment cycle, from fundraising and investment to management and exit”.
The Guiding Opinions were intended to “optimise incremental growth, revitalise existing assets, support the strong, restrain the weak, and improve quality and efficiency”, said the spokesperson.
Comprehensive assessment ushers stricter oversight
Echo Liu, a partner based in Shanghai at Grandway Law Offices, highlighted a shift in regulatory philosophy. “The most important trend is the move from an approach that emphasised registration over supervision to one focused on source-level risk prevention and whole-cycle oversight, as well as a shift from unilateral regulation to multi-dimensional governance,” she said.
In practice, two major trends stand out: the strengthening of the leading role of administrative supervision and earlier regulatory intervention at the entry stage. The latter was reflected in introducing the “comprehensive assessment and consultation” process as a precondition for business registration, she said.
Lin said this marked the first time that such a process had been elevated to a nationally unified standard, and institutions that failed to complete it would not be permitted to apply for business registration. The mechanism required newly established entities to undergo a joint assessment by local financial regulators and CSRC regional offices before registration, thus preventing industry risks at source and eliminating “fake private funds”.
Beyond administrative supervision, the Guiding Opinions also introduce a social oversight mechanism.
A notable change was the introduction of a whistleblower system for the first time, with reporting channels designed to make use of public oversight and internal leads, said Lin.
At the market level, the new rules would accelerate the deregistration and removal of unqualified fund managers, he said. “This will truly enable co-ordinated action among the CSRC system, self-regulatory associations and market supervision authorities.”
Localising responsibility for risk resolution
The restructuring of responsibility for risk resolution on a localised basis is another noteworthy feature.
Article 14 of the Guiding Opinions states: “Risks involving private fund managers should be handled by provincial-level governments and specially designated municipalities where the managers are registered, together with relevant departments including the securities regulator under the State Council.”
Liu said risk resolution previously suffered from a common regulatory gap. “The Asset Management Association of China could deregister managers but had no enforcement powers; the CSRC could impose penalties but lacked local resources; while local governments faced pressure to maintain stability but lacked professional authorisation,” she said.
The new rules placed risk resolution under a framework led by local governments with support from relevant authorities, which would help address longstanding mismatches in responsibilities between central and local governments, said Liu.
When fund managers operated outside their place of registration, local governments in the registration jurisdiction would still bear responsibility for risk resolution. This change would “discourage the practice of registering in low-tax jurisdictions while operating in first-tier cities”, and encourage alignment between registration and operating locations, she said.
As compliance rises, capital improves
For companies planning to raise capital through private funds, Liu said: “Compliance thresholds for fundraising will rise significantly, but the quality of patient capital will also improve.”
As government-backed and state-owned enterprise funds came under stricter supervision and long-term institutional capital such as insurance and social security funds entered the market, investors would become more professional and prudent, placing higher demands on corporate governance and financial compliance, she said.
Companies should prepare in three ways. “First, conduct reverse due diligence to verify whether potential investors have been blacklisted. Second, strengthen internal compliance by standardising financial records and related-party transactions to prepare for future look-through reviews,” said Liu.
“Third, make good use of policy support by citing regulatory guidance encouraging patient capital and standardising valuation adjustment mechanisms (VAM) when negotiating terms such as veto rights and VAM arrangements, thereby improving fundraising efficiency.”.
Short-term pain, long-term gain
Looking ahead, Lin said the new rules might bring a period of adjustment and growing pains. Greater attention from fund managers to policy impacts and internal compliance requirements might create short-term uncertainty for corporate fundraising. “In the long run, however, they will greatly benefit from the healthy and orderly development of financing,” he said.
In future fundraising activities, companies should “focus on PE funds with strong compliance capabilities, mature investment research systems, robust risk controls and stable performance, so as to avoid adverse effects on operations and financing caused by compliance failures at the fund level,” said Lin.
He also said companies should be prepared to reject unfair VAM provisions. “Companies should say ‘no’ to terms that create an imbalance between the parties, including arrangements that disguise debt as equity, guaranteed fixed returns or place all entrepreneurial risks solely on founders, and should remove unreasonable provisions from financing agreements,” he said.
