China wants foreign private equity to raise yuan funds

BEIJING, Nov 8 (Reuters) China's door is open to foreign private equity firms, so long as they raise their funds within China in yuan to help absorb the country's abundant liquidity, deputy central bank governor Wu Xiaoling said on Thursday.

The government was getting pickier about allowing in private equity funds armed with money from abroad because China, with its soaring current and capital account surpluses, was already a magnet for more than enough foreign exchange, Wu said.

''I think foreign private equity funds should make more use of yuan market and raise funds in China in yuan,'' Wu told a financial forum.

''Because of the large surpluses, the Chinese government is becoming gradually stricter in approving entry of foreign private equity funds,'' she added.

What China needs is expertise and talents, not money, and private equity firms could provide a major fillip for technological improvement and industrial innovation, Wu said.

For private equity joint ventures, she said those in which foreign stakes amount to less than 25 percent should be treated on par with their entirely Chinese rivals and given the same investment opportunities.

China's booming economy has attracted strong interest from foreign private equity firms such as Kohlbery Kravis Roberts&Co [KKR.UL] and Carlyle Group [CYL.UL]. But increased regulation aimed at increasing capital gains tax and developing local capital markets has slowed the number of deals. Private equity volumes through to September were barely a third of the previous year, according to Thomson Financial data.

In wide-ranging comments on private equity in China, Wu also said domestic banks, insurers and trust firms already engaged in asset management should be allowed to raise private equity funds under strict caps.

On the issue of taxation, she said private equity funds that invest in small and medium-sized high-tech firms would enjoy a 70 percent tax exemption. Wu said authorities should redouble their efforts to streamline the legal and tax frameworks for the private equity industry.

REUTERS BJR RN1523