China Securities Regulatory Commission (CSRC) in Beijing Photo:VCG

China on Sunday unveiled a regulation on the supervision and administration of private equity funds, the first administrative regulation of the kind in the country. The regulation, with 62 items in seven chapters, will be effective from September 1, according to a State Council decree released on Sunday.

The introduction of the regulation is conducive to improving the supervision system of private equity funds and the healthy development of the sector, as well as encouraging the sector to play a more important role in serving the physical economy and promoting the scientific and technological innovation, an official representing the Ministry of Justice and China Securities Regulatory Commission (CSRC) said on Sunday.

"The healthy development of the private investment fund industry will promote the formation of equity capital, effectively serving the physical economy, key economic fields and strategic industries. The investment sector will also help boost economic development, entrepreneurship and employment," the official said in a post published on CSRC's website.

In recent years, China's private investment funds industry has developed steadily. As of May 2023, there are 22,000 private equity fund managers registered in the Asset Management Association of China (AMAC), with 153,000 funds under management, totaling 21 trillion yuan ($2.9 trillion).

"Private equity funds have played an important and positive role in supporting entrepreneurship and innovation, increasing the proportion of direct financing, and serving residents' wealth management," the official said.

As of the first quarter of 2023, private equity funds have invested in nearly 200,000 equity securities of listed or unlisted enterprises, the New Three Board enterprises and refinancing projects, forming equity capital of more than 11.6 trillion yuan, according to CSRC.

Meanwhile, private equity investment funds actively support key scientific and technological innovation areas and national strategies such as computing, semiconductor, pharmaceuticals and biology sectors. As of the first quarter of 2023, private investment funds have invested nearly 5 trillion yuan in these enterprises.

A manager at a Beijing-based private equity fund told the Global Times on Sunday that the company is studying the items of the regulation. 

"The introduction of this regulation is a good thing for the industry, as it means that the country attaches importance to private investment funds. In addition, the regulation can also help the industry develop in a more regulated and healthier way," said the manager, who declined to be named.

At present, some of China's private equity funds are conducting short-term speculative investments, which account for about 80-90 percent of the market share of private equity funds, Dong Dengxin, director of the Financial and Securities Institute of the Wuhan University of Science and Technology, told the Global Times on Sunday.

"The new regulation clarifies special provisions on private venture capital funds, which is important to guide private equity funds to invest in technological innovations, as well as the transformation and upgrading of China's economy," said Dong.

Dong said that the regulation on private equity fund management is mainly designed for the development and growth of China's funds market, while the fee reductions announced by the equity funds sector on Saturday will help attract more investors to the market.

The CSRC said on Saturday that it will promote the high-quality development of the funds sector and steadily lower the industry's fee rates.

On Saturday, a number of fund management companies in China announced that they will from Monday lower the management fees of their equity fund products to no more than 1.2 percent, and custodian fees to 0.2 percent, local media reported.

Assets under management by Chinese public mutual funds totaled 27.77 trillion yuan ($3.97 trillion) at the end of May. Meanwhile, a total of 10,890 public mutual funds were operated by 143 fund management companies, according to statistics from the AMAC. Of the 143 fund management companies, 47 are foreign-funded firms, the association said.