Greater role for private-equity fund urged

China should expand local companies' fundraising options by letting commercial banks invest in the country's private-equity funds, a deputy central bank governor said. 　　

"Our current capital market is insufficient in meeting the funding needs of our companies," Wu Xiaoling said Wednesday at a conference in eastern China's Tianjin city. "Banks are institutions that manage risks anyway so they should be in the best position to judge the risks in these instruments."

Private-equity funds should be allowed to buy stakes in closely held Chinese companies before they go public, Wu said. They should then be given freedom to bring in overseas management expertise to help companies prepare for initial public offerings, she said.

China needs rules for private equity funds to exit from their investments, Wu said without elaborating. It also needs funds that specialize in investing in the country's currency, the yuan, she said Wednesday.

China Development Bank and Tianjin government plan to set up a 2 billion yuan ($262 million) fund to invest in venture capital firms, according to the city's deputy mayor, Cui Jindu.

Tianjin's Bohai Industrial Investment Fund, <nobr onmousemove="kwM(4);" onmouseout="kwL(event, this);" onmouseover="kwE(event,4, this);" oncontextmenu="return false;" target="_blank" onclick="return kwC();" style="border-bottom: 1px dotted rgb(102, 0, 255); font-size: 14px; text-decoration: underline; color: rgb(102, 0, 255); background-color: transparent;" id="key0">one</nobr> of the nation's private equity funds, has 20 billion yuan of investments. The fund was initiated by six mainland companies, including China Life Insurance Co.

China invested $3 billion in Blackstone Group LP's IPO last month to boost returns and diversify its $1.2 trillion of foreign exchange reserves into higher-yielding overseas assets than the U.S. Treasuries that make up much of its holdings.

Economic growth of more than 10 percent has intensified competition among private-equity firms for access to China, where the government in September imposed stricter rules on overseas buyouts. The value of announced foreign acquisitions in China fell 11 percent to $27.5 billion in 2006, according to data compiled by Bloomberg.

Wu's comments follow a call earlier Wednesday by China's industry regulator for banks to triple the share of revenue they get from non-interest income over the next five to 10 years.

Fees and commissions from services such as insurance and mutual fund distribution should account for half of revenue at nationwide banks, up from the current 17 percent, Tang Shuangning, vice chairman of the banking watchdog, said in a statement.

Slowing Loan Growth

Tang's target would bring Chinese banks more in line with foreign rivals. Domestic banks get more than 90 percent of earnings from interest income -- the difference between what they pay depositors and charge on loans. That compares with 65 percent overseas, according to China Chengxin International Credit Ratings Co., a domestic credit rating company.

"Loan growth will start slowing over the next five to 10 years, so Chinese banks that are dependent on interest income won't have much room for expansion," Li Fuan, director of product innovation at the China Banking Regulatory Commission, said at a wealth management conference in Beijing Wednesday. It's "imperative" for banks to increase their investment product offerings, Li said.

China plans to <nobr onmousemove="kwM(2);" onmouseout="kwL(event, this);" onmouseover="kwE(event,2, this);" oncontextmenu="return false;" target="_blank" onclick="return kwC();" style="border-bottom: 1px dotted rgb(102, 0, 255); font-size: 14px; text-decoration: underline; color: rgb(102, 0, 255); background-color: transparent;" id="key0">focus</nobr> on the "quality" rather than the "quantity" of investment from overseas buyout firms, the nation's top planning body said Nov. 9. That means importing more technology, management skills and research capabilities rather than just seeking capital, it said.