CHINA Trends and Developments Contributed by: Richard Guo, Zhen Chen, Zhiyi Ren and Sherman Deng, Fangda Partners
Introduction Over the past decade, China’s private equity (PE) and venture capital (VC) sector has shifted from a high- growth phase driven by IPO exits to a more complex ecosystem. Enforcement of regulations has become stricter, with a higher threshold for compliance. There are now more diversified exit routes for alternative funds. Mainstream investors have moved on from being short-term capital of private enterprises and wealth management products to “patient capital” led by governmental guidance funds, state-owned enter - prises and insurance companies. On the portfolio investment side, there has been a gradual decline in growth capital investments, while buyout investments and early-stage venture capital investments are growing steadily. The investment sector focus has been on advanced manufacturing, healthcare, information technology and the green/low- carbon economy. Overall Landscape and Regulatory Posture A consistent theme of the regulation of alternative funds in China in recent years has been the twin tracks of promoting development and tightening supervision. The PRC government encourages private capital to play a more active role in building a modern industrial system. In accordance with the Securities Investment Funds Law amended in 2014, the China Securities Regula - tory Commission (CSRC) is the government agency in charge of the investment funds (including private funds) sector, and the Asset Management Associa - tion of China (AMAC) is the self-regulatory body. In 2023, the State Council released the Ordinance on the Supervision and Administration of Private Investment Funds (the “Ordinance”), which filled the gap between the Securities Investment Funds Law and the indus - trial regulations (including self-disciplinary rules) of the CSRC and AMAC. The Ordinance clarifies the princi - ples of the private funds sector, including fundraising, investment, custody, disclosure, conflict management and investor suitability. After the Ordinance came into effect, the CSRC and AMAC released multiple regulations and self-disci - plinary rules to strengthen supervision over the fund
sector. For instance, at the end of 2023, the CSRC released for public consultation the draft Adminis - trative Measures on Supervision and Administration of Private Investment Funds, which was intended to prevail over the 2014 CSRC Interim Measures. This draft has not yet been officially promulgated. AMAC, as the de facto industrial regulator, has adopted sev - eral self-disciplinary rules since 2023, including the Private Fund Registration and Filing Measures, several guidelines on fund manager registration and fund filing and guidance on pilot private real estate funds. National-level rules by multiple regulators are also under discussion. For instance, there is a widespread expectation for unified national-level rules to harmo - nise Qualified Foreign Limited Partner (QFLP) and Qualified Domestic Limited Partner (QDLP) regimes in due course. A National and Local Policy Pivot: “Functional Reset” for Governmental Guidance Funds Governmental guidance funds are typically funds of funds (FoFs) sponsored and funded by central or local government-backed platforms to strengthen the local economy. They typically require their investee funds to make return investments to designated local areas. Usually, governmental guidance funds are risk-averse due to the stringent supervision of state-owned assets. In early 2025, however, China’s central government adopted new policies such as the Guiding Opinions on Promoting the High-Quality Development of Gov - ernmental Guidance Funds (the “Guiding Opinions”), which has led to a resetting of governmental guidance funds. Government-backed and state-owned funding has been repositioned as a complementary, catalytic allocator operating on professional and market-based principles. In place of the rigid requirement for return investments, the new policies contemplate more flex - ible cross-regional capital deployment, as well as set - ting up loss tolerance mechanisms and duty-of-care safe harbours. These policies are important signals that as long as the guidance funds, their investee funds and their respective managers are prudent in decision-making and comply with the rules in opera - tion, losses resulting from reasonable business judge - ments will be tolerated.
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