Study Of China's Private Equity Fund Regulatory Legal Issues

Nowadays, Private Equity Funds (hereinafter"PE Funds") are very popular around the whole world. After years of rapid development, PE Funds have become the most important financing method just next to bank credit and IPO in aspect of scale. The capital market system has four parts, stock market, bond market, bank credit market and private equity market. For those enterprises which cannot get loan from banks, or cannot carry out public offerings, PE Funds can meet their financing demands effectively. China's PE Funds started from 1985. Facing a growing private equity market, the Chinese government must solve the urgent problem that whether it is necessary to give some regulation to PE Funds or not. This thesis is outcome of the author's consideration and research on this issue.There are three parts in this thesis, the introduction, the body, which includes four chapters, and the conclusion.The first chapter introduces some background knowledge of PE Funds. The intension, extension and classification of PE Funds are firstly illustrated, and then it comes to the operating mechanism. There are three stages in a cycle of PE Funds, raising stage, investing stage and exiting stage, and four types of participants, invested enterprises, investors, managers and intermediary service agencies. Most PE Funds take limited partnership as their organizational forms, which can effectively solve the information asymmetry between investors and managers. Also, PE Funds are very important for capital market and invested enterprises.The second chapter demonstrates why the Chinese government should take some supervisory steps to PE Funds. Government's regulation to a special market is due to its Market Failure, which is inevitable because of externality, information asymmetry, and unequal bargaining strength between the two parties. The United States has the most developed private equity market around the world. Integrated system of private placement along with specialized fund manager ranks, professional intermediary agencies and perfect governance structure determines that it is not necessary for the US government to supervise PE Funds directly. But PE Funds in China, which have a short history, are in a different situation and the Chinese government must take some supervisory actions to make sure their healthy development.The third chapter analyzes current supervisory situation of China's PE Funds and its main problems. The author discusses government regulation in raising stage, investing stage and exiting stage respectively, with a conclusion that the Chinese government must solve three problems in order to improve its regulation.The last chapter discusses how to improve regulation of China's PE Funds. Several questions relevant to PE Funds are mentioned in this chapter, such as the establishing procedure, qualifications of investors and managers, investing scope, tax policies and so on.