China responds to investor concerns in meeting with global funds

(Bloomberg) – Chinese regulators met with global investors on Friday, people familiar with the matter said, stepping up the government’s bid to bolster market confidence as the country’s economic recovery falters.

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China Securities Regulatory Commission Vice Chairman Fang Xinghai has met with global venture capital and private equity firms to hear their concerns about investing in the country, the people said, asking not to be named as the matter is private. Among those present were Neil Shen, founding partner of HongShan – formerly known as Sequoia Capital China – and representatives from GIC Pte. and Warburg Pincus. Chinese director of Temasek Holdings Ltd., Wu Yibing, has also joined the team.

Fang was accompanied by regulators from the securities watchdog and the Asset Management Association of China, the sources said. Neither agency responded to questions about the after-hours meeting, nor did HongShan or GIC. Temasek could not immediately provide comment while Warburg Pincus’ representative declined when contacted by text message.

The rare encounter with global funds comes after Chinese President Xi Jinping’s administration voiced its strongest support in years for the country’s private tech companies days earlier. The government’s efforts, however, have been met with skepticism, with investors calling for more concrete action and stronger stimulus to revive growth.

Topics discussed at Friday’s meeting included steps that can be taken to ensure global funds can continue to invest in China, the sources said. Regulators have been urged to speed up registration procedures for overseas initial public offerings, speed up listings in mainland China and ease rules on mergers and acquisitions, one of the people said.

Escalating tensions

Escalating tensions between China and the United States, Beijing’s multi-year crackdown on its private sector and the country’s weakening economy are dampening investor interest. Private equity and venture capital firms are struggling to attract institutional money from US endowments and pensions because of these long-term concerns.

This week, a US congressional committee said it was investigating four venture capital firms for their investments in Chinese tech companies, the latest sign of Washington’s growing scrutiny of US funds suspected of helping develop sensitive industries in China. The entities under investigation are GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures.

The US State Department also recommended in June that Americans reconsider travel to mainland China due to the arbitrary application of local laws and the risk of wrongful detentions, which have scared the business community.

Concerns about regulatory repression in China also weighed on the investment community. This month, the Communist Party and the government issued a rare joint statement containing 31 measures to improve business conditions, including promises to treat private companies the same as state-owned companies.

Although the move has won support from Chinese entrepreneurs, including Pony Ma, billionaire co-founder of Tencent Holdings Ltd., foreign companies are looking for more than rhetoric after two years of pandemic suppression and control. The European Union Chamber of Commerce in China said its companies were used to “making pro-business statements with little concrete action.”

The government showed its support for private equity and venture capital earlier this month when Premier Li Qiang approved final rules on the 20 trillion yuan ($2.8 trillion) private equity market nearly six years after a draft was released. While penalties for irregularities have been significantly toughened, the new rule provides a special chapter for venture capital, with more relaxed requirements. It also exempted parent funds from certain restrictions, to the benefit of the secondary private equity market.

China’s hesitant economic recovery has cooled global markets. Beijing opted for targeted measures – instead of a broad stimulus – in favor of lower interest rates, easier access to credit and a series of measures to revive the moribund housing market.

Companies are still waiting for signals from Xi’s new economic team that the political environment will be more transparent and predictable. The president has repeatedly insisted that economic development is the Communist Party’s top priority, even as his government makes protecting national security a priority.

–With help from Amanda Wang and David Ramli.

(Updates with details on more attendees starting in the second paragraph.)

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