The regulation of private equity and venture capital in China is evolving quickly. In late December, Shanghai announced a pilot scheme to allow foreign general partners to invest foreign currency in private equity funds that they manage within China (see Business Law Digest on page 20). Now, the National Development and Reform Commission (NDRC) has imposed new filing and disclosure procedures on private equity investors.
The NDRC Progressively Standardizing the Development and Filing Management Work of Equity Investment Enterprises in Pilot Areas Notice was issued on 31 January. It applies in localities which have introduced pilot schemes to encourage private equity investment, namely the cities of Beijing, Shanghai and Tianjin, and the provinces of Jiangsu, Zhejiang and Hubei.
Foreign-funded private equity funds will be encouraged, and in some cases required, to disclose certain information about their investments and their financial position.
In addition, the Notice lays down rules governing the establishment of equity investment enterprises, the raising and investment of capital, the diversification of risk, and corporate governance.
According to Australian law firm Minter Ellison, “the main impact of the new rules will be seen in how strenuously the NDRC enforces the filing and annual inspection requirements on private equity enterprises, and whether it follows through on publicly naming ‘non-filing’ enterprises, including those who do not meet the RMB500 million registered capital threshold for mandatory filing”.
Regulation of private equity and venture capital remains in flux. There is speculation among lawyers that other regulatory authorities, including the China Securities Regulatory Commission, may also regulations governing private equity investment.