Enhanced equity financing key to serving innovative startups

China will make greater efforts to improve the regulatory framework of the private fund industry as part of systemic moves to beef up the role of equity financing in serving innovative startups, officials said on Thursday.

Wang Jianping, an official at the China Securities Regulatory Commission, said the CSRC will roll out regulations to strengthen compliance of the private fund industry as soon as possible, improve tax arrangements facing the industry and usher in more industry players with a long-term investment expertise.

Efforts will also be made to help private equity and venture capital funds improve their investment expertise when it comes to high-tech, innovative companies, Wang said at the 2021 Annual Conference of Financial Street Forum in Beijing on Thursday.

The measures will target solving problems facing the private fund industry, such as those regarding the policy framework, industry players' professional and compliance levels and their willingness to invest in early-stage companies, Wang added.

Going forward, private equity and venture capital funds will play a bigger role in boosting direct financing, which refers to equity and bond financing, given the favorable conditions provided by the ongoing registration-based reform and the upcoming opening of the Beijing Stock Exchange, Wang said.

The stepped-up efforts to boost the private fund industry come amid the country's multipronged measures to strengthen the function of direct financing in serving the real economy.

China sees increasing the proportion of direct financing, especially equity financing, as a key task of reforming the financial sector through 2025, according to the 14th Five-Year Plan (2021-25).

Official data showed that PE and VC funds' accumulative investments in the equity of non-listed companies have exceeded 8 trillion yuan ($1.25 trillion) so far, functioning as a key financing channel for non-listed innovative enterprises.

Meanwhile, total proceeds from initial public offerings and issuances by listed firms have topped 5.5 trillion yuan over the past five years.

In the latest move to boost direct financing, China announced it would set up the Beijing Stock Exchange to build a major base serving innovative small and medium-sized enterprises.

Yi Huiman, chairman of the CSRC, said on Wednesday that efforts will be made to leverage the BSE's role in invigorating the innovation and base tiers of the New Third Board, a national equity trading platform for SMEs.

The country will also strengthen the connectivity of the BSE with its Shanghai and Shenzhen peers as well as regional equity markets, forming a capital market system that serves SMEs at all development stages.

Li Jizun, another CSRC official, said the commission is studying ways to revise related rules to improve listed firms' information disclosure, while improving trial registration-based systems to achieve a greater synergy of different reform measures.