China should encourage foreign private equity (PE) firms to raise funds in yuan on the domestic market to absorb the country's excess liquidity, Wu Xiaoling, deputy governor of the People's Bank of China, said Thursday.

"Private equity funds have served as the accelerator of enterprises," said Wu at the International Finance Forum held in Beijing.

She added that private equity had brought active results on the development of the Chinese capital market.

"However, I hope foreign private equity funds would make more use of the yuan market given the liquidity problem and an expanding surplus in international payments," Wu said.

"What the country needs is not money, but expertise in investment and management of private equity funds," Wu said, adding that Chinese expertise in managing private equity funds was scarce.

Encouraging foreign private equity teams to establish yuan-denominated funds in China would be an effective way to cultivate talents, she said.

Wu personally suggested that private equity joint ventures in which foreign investors hold less than 25 percent should be treated as domestic funds, which are allowed to invest in broader areas.

But the authorities still need to carefully decide the maximum investment allowed by foreign private equity in Chinese companies, and restrict them in raising funds with depository banking institutions, she said.