Chinese Regulator Vows to Crack Down on Private Equity Funds

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(Bloomberg) — China’s securities regulator said it plans to rein in the country’s private equity and venture capital funds, stop public offerings disguised as private placements and fight embezzlement of assets.

The China Securities Regulatory Commission will work to root out “fake” private equity funds that are actually sold to the general public instead of targeted investors, Chairman Yi Huiman said in a speech to a fund-industry association. The CSRC will also crack down on money managers that illicitly take public deposits, offer loans or embezzle fund assets.

China’s financial regulators have become more assertive in recent months, cracking down in areas from online lending and insurance to initial public offerings and margin financing. Greater oversight of the private equity industry has already kicked off. China halted such funds from raising money to invest in residential property developments, people familiar with the decision said earlier this month.

“Private equity funds must return to the defined role of being private and supporting innovation and startups,” Yi said in the speech published on the CSRC website. The regulator will impose targeted policies, support genuine private funds and “resolutely eliminate fake ones to promote an orderly market order and industry eco-system.”

Investors have been bombarded this year by a sweeping crackdown from Chinese regulators that has targeted a growing list of companies including technology giants Ant Group Co. and Tencent Holdings Ltd., after-school tutoring firms and ride-hailing platform Didi Global Inc. The moves are part of a broader push for “common prosperity” by President Xi Jinping that has ratcheted up in recent months.

Meanwhile, financial regulators have renewed a campaign to curb credit growth and restrain leverage in the real estate sector to ensure financial stability.

The number of registered fund managers has exploded in the past several years, with “false” private equity expanding alongside “true” private equity, damaging the industry, Yi said in his speech. The CSRC will strictly regulate fund raising, investment, management and withdrawal of funds within the sector, he said, without providing a timetable for new rules.

At the end of July, China’s private equity and venture capital funds managed a total 12.6 trillion yuan ($1.95 trillion), tripling from the end of 2016 and becoming the world’s second-largest. The nation’s mutual funds that are sold to the public oversaw 23.5 trillion yuan, the CSRC said.

(Updates with more details in the second paragraph.)

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