China should expand local companies' fundraising options by letting commercial banks invest in the country's private-equity funds, the vice-governor of the central bank said.
"Our current capital market is insufficient in meeting the funding needs of our companies," Wu Xiaoling said yesterday at a conference in Tianjin. "Banks are institutions that manage risks anyway so they should be in the best position to judge the risks in these instruments."
Wu's comments follow a call earlier yesterday 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 banks, up from the current 17 percent, the regulator urged.
Private equity funds should also 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 renminbi, she said.
China Development Bank and Tianjin government plan to set up a 2 billion yuan fund to invest in venture capital firms, said Tianjin Vice-Mayor Cui Jindu.
Tianjin's Bohai Industrial Investment Fund, one 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 US treasuries that make up much of its holdings.