Jan 12 (Reuters) - China's securities regulator and state economic planner are embroiled in a turf battle over who should have oversight of the rapidly growing private equity sector.
The power play by the China Securities Regulatory Commission spells uncertainty and adds to the string of regulators the sector already has to deal with. [ID:nTOE70B01C]
Here are some facts about China's private sector:
NEW FUNDS
In 2010, 82 China-focused private equity funds were set up, raising $27.6 billion yuan. That was more than double the $12.96 billion yuan raised by 30 funds during the previous year, according to Beijing-based fund consultancy Zero2ipo.
Of the 82 funds, 71 were denominated in the Chinese currency , although they only raised a combined $10.7 billion, compared with $16.94 billion by generally much bigger hard-currency funds.
Zero2ipo estimated that 31 private equity funds set up last year have not yet finished fundraising, and they target to raise a combined $12.2 billion.
Highlighting investor sensitivity to central government policies, 68 new funds last year were targeting growth companies, while 10 were real estate funds and four M&A funds.
Sectors that received government support gained investor favour, with biotechnology, pharmaceutical and healthcare ranking among the most popular industries, followed by clean-tech, machinery, food & beverage and retail, Zero2ipo said.
REGULATORY STAKEHOLDERS
The National Development and Reform Commission, the state economic planner, is currently the PE sector's main regulator by default after approving the establishment of several government funds.
The China Securities Regulatory Commission proposed in 2009 revisions to the Securities Investment Funds Law, seeking to emerge as the sector's new main regulator.
Private equity firms complain that they face difficulty getting domestic listing approval for the companies they have invested in, which eliminates a key avenue used in developed countries to exit investments.
Other stakeholders include the Ministry of Commerce and the State Administration of Foreign Exchange (SAFE).
The ministry has been criticised by some as being over-protective of national interests and strategic industries. It rejected Coca-Cola's $2.4 billion bid for China's top juice maker Huiyuan , in 2009 and buyout giant Carlyle's $375 million bid for Xugong, China's biggest construction equipment maker, in 2008.
Foreign private equity seeking to set up yuan-denominated funds in China have complained about the tedious approval process for foreign exchange quotas by SAFE.
TIANJIN TEST BED
The northern port city of Tianjin is the hub of the private equity industry in China, counting 396 funds totalling 76 billion yuan ($11.13 billion) in registered capital as of the end of April last year.
About 20 such funds register each month in Tianjin due to its status as a test-bed for financial reforms.
About 110 of the funds registered in Tianjin have foreign participation, and 20-30 are fully foreign funds.
For Tianjin, attracting funds is a way to build a financial industry and diversify beyond shipping and steel.
SHANGHAI PILOT PROGRAMME
China's financial hub Shanghai will allow foreign private equity firms convert overseas funds worth $3 billion into yuan for direct investment under a pilot programme, according to the China Securities Journal.
Initially, global buyout firms including the Blackstone Group , the Carlyle Group and First Eastern Investment Group will be given a combined quota of $300 million.
Fifteen other private equity funds will receive $1.5 billion under the Qualified Foreign Limited Partner programme, the newspaper said, citing unidentified sources.
ISSUES THAT NEED RESOLVING
There was modest progress in the regulatory landscape for renminbi funds last year, including the adoption of the Foreign Invested Partnership Rules, facilitating foreign PEs entering the foray.
There are still many issues that need to be resolved, law firm Morrison & Foerster said in a paper, including having a qualified foreign limited partner programme in place to allow foreign limited partners to convert U.S. dollars into renminbi and giving foreign-invested renminbi funds "national treatment" to make investments in industries traditionally restricted from foreign investment. (Compiled by Benjamin Kang Lim and Samuel Shen; Editing by Ken Wills and Lincoln Feast)