No pain, no gain for private equity

The private equity and venture capital industry in China is dynamic and fast-growing. In late 2008, the State Council, in a formal policy document, used the magic words for the first time: 股权投资基金 – private equity investment fund. Local governments in Tianjin, Shanghai, Beijing and other cities have issued various local rules in the past year that permit the formation of private equity funds and fund management companies. In the meantime, many foreign private equity fund managers also started to look towards the vast capital pool available in China and explore ways to set up pure renminbi (RMB) funds in mainland China.

If a foreign private equity fund manager intends to establish an RMB fund in mainland China, it can be structured either as an indirect pure RMB fund (RMB Fund) or as a foreign-invested venture capital investment enterprise (FIVCIE). An indirect pure RMB Fund at first appears to be a practical vehicle, but there are certain legal and practical uncertainties associated with this structure.