Brief Discussion On Improving Legislation And Supervision Of Private Equity In China

Private Equity (PE) refers to fund that is raised between private Persons and invested as equity into non-listed companies. PE, by developing the target enterprise, will create wealth be means of increase assets. RMB PE, due to its advantages in"domestic raising, domestic investing and domestic exit", has become the main trend in China, which also symbolizes the birth of China's domestic capital circulation mode. Regulating RMB PE becomes a major task of legislation and supervision. It is of great significance for China to develop PE, which is helpful in promoting the whole managing structure of enterprise. However, we have to stick to the core value when developing PE. The core value of PE lies in creating values instead of seeking short-term interest. Among the PE investment procedures, Due Diligence Investigation is one of the most important; unfortunately, it is usually ignored in present China PE circle. China has witnessed rapid development in PE, but it is somewhat overheated and opportunism is rampant. PE manager intends to seek for short-term interest, regardless of developing potential of target enterprise, nor providing value-added services to target enterprise. As for exit mechanism, PE excessively relies on IPO. The lack of exit mechanism in China's Growth Market undermines future operation of target enterprise after PE exit. The issues in PE industry require efficient and reasonable legislation and supervision, but the later also have issues. Legislation on PE is unsystematic and the level of law resource is low in force. Some basic legal concepts and principles remain unclear. Legislative techniques are hard to apply. There are no uniform regulations for many specific legal issues. As for supervision, there is no statutory supervising organ, making supervision lack of credibility and faith from public. Supervision becomes almost impossible due to lack of specific supervision regulations, such as qualification of qualified investor, investor protection, information disclosure etc. By probing into the present status of PE industry, legislation and supervision, a brief judgment can be reached, namely, only by sticking to the core value of PE, can various issues in legislation and supervision be reasonably solved.