Move follows instances of illegal fundraising in fast-expanding sector
An official from the Beijing Administration for Industry and Commerce (BAIC) confirmed to the Global Times on Monday that the agency has suspended the registration of private equity firms, effective immediately.
No registrations were being accepted for investment enterprises involved in sectors such as equity investment, investment management and consultancy, asset management, financing and leasing as of Monday, the official said on condition of anonymity.
"We don't know when the authorities will resume registrations,"the official noted.
China's private equity (PE) industry has grown substantially in recent years. In 2014, funds raised in China accounted for about 9 percent of the global total, up 3 percentage points year-on-year, according to multinational professional services provider PricewaterhouseCoopers (PwC).
PwC also said 2014 was a banner year for new investments by PEs with a record volume of $593 billion, up about 51 percent year-on-year.
From January to November 2015, at least 23,705 PE fund managers registered with the Asset Management Association of China, the self-regulatory association of fund management companies, according to the body's monthly report released on November 10. The sector's paid-in capital reached 3.82 trillion yuan ($577.471 billion), the association said.
The number of PEs continued to grow in 2015, partly because fund managers became more confident about the domestic PE market after the China Securities Regulatory Commission issued PE fundraising guidelines in August 2014, Li Chunyu, secretary general of the Shenzhen Private Equity Association, told the Global Times Monday. "Also, the bull stock market in 2015 fueled fundraising,"Li said.
The investor base has also grown rapidly in China in recent years. Currently, 667 active private equity investors based in Asia are tracked by global asset data provider Preqin, and China has the largest proportion of these firms, Preqin said in a report released in September 2015. Still, Chinese PE firms often lack professional staff and investment experience, the PwC report noted.
PE firms also face regulatory challenges, particularly in relation to the booming peer-to-peer (P2P) lending market, which has been hit by scandals, fraud and allegations of abuse, said Ge Yulin, a Beijing-based expert who specializes in enterprise registration at the BAIC.
"By suspending registration, the BAIC aims to enhance regulation of the PE industry to protect investors'interests,"Ge told the Global Times Monday.
However, Li said he doubted that suspending registration was an optimal way to prevent illegal private investment and fundraising.
