Shanghai Petitions Currency Rule Changes to Attract More Foreign Private Equity Firms

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SHANGHAI, Aug. 6 – Local government officials are petitioning that restrictions on private-equity firms be changed to encourage more foreign private-equity firms to open offices in the Pudong financial district.

Director-general of Shanghai’s financial-services office, Fang Xinghai, told the Wall Street Journal that the city wants foreign private-equity firms that raise majority of their capital within China to be considered as domestic firms by the State Administration of Foreign Exchange.

He said: “After talking with a group of foreign [private-equity] companies, we find that they have great interest in setting up renminbi funds in China, but China’s existing laws and regulations make it difficult for them to do so.”

This goes in line with the city’s goal to be a global financial hub in the future. There is also talk of other measures to ease private equity like easing investment rules and lowering taxes.

It was only three years ago that private-equity firms were sanctioned in China to allow more mergers and acquisitions and currently state-owned firms still manage most of  the Chinese private-equity firms.

In a nutshell, private-equity firms work by buying out sinking businesses with potential then revamping them and selling them again. Usually funding for private equity purchases come from institutional investors.

This month,the first government-funded private-equity company to invest in the financial sector called GP Capital was launched. The venture is a 50-50 partnership between Shanghai government-backed investment firm Shanghai International Group and China International Capital, which is 34 percent owned by Morgan Stanley, the company said in a statement.