* China yuan funds of overseas PE firms to be treated as
* Over 60 yuan funds worth over 80 bln yuan launched by
* Foreigners face restrictions in media, telecom, mining
By Samuel Shen and Jason Subler
SHANGHAI, May 8 China plans to treat local money
raised and managed by global private equity firms as foreign
funds, industry sources said on Tuesday, restricting their
access to sectors such as media and mining in the world's
Foreign private equity firms such as Blackstone Group
and TPG Capital Management have been setting up
yuan-denominated funds in cities such as Shanghai, hoping they
could be treated as local funds and thus avoid curbs on the
sectors overseas funds can make investments in.
In a move aimed at ending regulatory ambiguity and
tightening supervision, China's Ministry of Commerce (Mofcom) is
formulating rules that will classify all foreign-run yuan funds
as non-Chinese, one source with direct knowledge of the plan
said on Tuesday.
The rules are set to introduced before the end of this year,
the source, who did not wish to be identified because of the
sensitivity of the matter, added.
"That would be a blow to foreign private equity firms as one
of the main purposes of launching yuan funds is to become
local," said Poddy Feng, analyst at consultancy ChinaVenture.
"Being treated as foreign means they're not allowed to
invest in certain industries in China and there are also
restrictions on ownership in some cases."
Mofcom wasn't available for immediate comment.
Global buyout firms such as Blackstone and Carlyle Group
as well as investment banks such as Goldman Sachs Group
Inc and Morgan Stanley have all launched yuan
funds since 2009, hoping the funds will allow them to invest
more quickly in a highly competitive market for deals.
China-focused private equity funds raised $32 billion in
2011, with yuan funds accounting for 68 percent of that sum,
according to consultancy Bain & Co.
More than 60 yuan funds worth over 80 billion yuan ($12.68
billion) in total have been launched by foreign private equity
and venture capital firms in the past four years, according to
Foreign private equity firms also invest in China through
U.S. dollar funds, but there are numerous obstacles, including
investment restrictions, lengthy deal approval procedures and
uncertainty surrounding overseas listings.
They are not allowed to invest in sensitive industries, such
as defense-related companies, and face restrictions on investing
in mining, media, telecommunications, education and the
Internet, among others.
In 2008, China rejected Carlyle's $375 million bid for
Xugong, China's biggest construction equipment maker, citing
concerns over foreign monopoly.
The plan by Mofcom echoed similar moves by the National
Development and Reform Commission (NDRC), China's top planning
agency. NDRC has ruled that all capital in a yuan-denominated
fund must come from local Chinese investors, failing which the
funds will be treated as foreign, the Wall Street Journal
reported on Tuesday.
Mofcom and NDRC's attitude toward foreign private equity
firms also reflect conflicting interests between China's local
and central governments.
Shanghai has been aggressively courting global private
equity and venture capital firms, hoping they can set up
subsidiaries in the city to launch yuan funds.
Under Shanghai's own rules, it's widely understood that if a
foreign private equity firm sets up a subsidiary in the city and
raises money locally, that yuan-denominated fund would be
considered as local.