Aug 30, 2021 - Economy

China takes aim at private funds

Xi Jinping

Xi Jinping at the Communist Party centenary in July. Photo: Qilai Shen/Bloomberg via Getty Images

China's increased scrutiny of capital markets isn't restricted to tech IPOs. It's also taking a harder look at private funds.

Driving the news: China's top securities regulator, Yi Huiman, today said in a speech that VC and buyout fund managers must better align their interests with those of limited partners, adding that the government is dedicated to rooting out embezzlement and public equities masquerading as private equities.

  • Huiman also decried public solicitation for private funds, which he said are at "in a critical period of transformation and development."

By the numbers: Chinese private equity and VC funds manage an estimated $2 trillion, more than tripling over the past four years. A lot of that growth was actively encouraged, and sometimes even directly enabled, by a government that believed its private sector was too reliant on bank lending.

The bottom line: This was a shot across the bow; a "clean your room or else" sort of message. If it's not heeded, Chinese regulators might be much more prescriptive, or even punitive, the next time around.

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