Beijing to introduce incentives for foreign PE

Beijing will soon announce incentives for foreign private equity firms, a city official said on Sept. 11.

Zhan Long, a division chief with the Beijing financial service bureau, told a media briefing that general guidance is likely to be issued by the end of September, with detailed rules to follow.

According to Zhan, the city will set up a 10 billion yuan pilot policy fund, followed by three industrial investment funds aimed at the high-technology, environment protection and creative sectors. The government-backed funds will collaborate with "excellent" investment management firms to set up more PE funds, he said.

Beijing is qualified to become a national hub for both domestic and foreign PE operations, Zhan added.

Beijing's move follows incentives announced by Shanghai. In June, the city's Pudong financial district announced incentives for foreign PE firms, including an undertaking to classify yuan-denominated funds with less than 20 percent foreign ownership as domestic companies.

PE firms, including Blackstone Group and Hong Kong-based First Eastern Financial Investment Group, have responded to the incentives by announcing plans to launch yuan-denominated funds in Pudong.

But legal and regulatory sources told Caijing on Sept. 9 that the central government is reviewing Shanghai's incentives, injecting an element of uncertainty for firms planning to start operations in the city.

The Ministry of Commerce maintains a list of sectors that are closed to foreign capital, and it might find that its rules are being bypassed if PE firms with foreign stakes of less than 20 percent are treated as domestic firms and free to invest in any Chinese company. The sources said Shanghai might have to modify its polices to gain regulatory approval.