We need to put continuing effort into the development of private equity funds because they are extremely effective managers of investment capital and will contribute to the healthy development of China’s capital markets.

Ms. Xiaoling Wu at the 2007 China M&A Annual Conference in the first China International Private Equity Forum held in Tianjin Binhai New Area, stated that private equity funds take on high risks but also offer high returns. Risks and returns are correlated in all capital markets. For financial institutions, the degree of its operating financial risk is not the focus. What matters is awareness of the risks and how to manage it. If the maximum amount of risk can be managed and contained, financial institutions should be allowed to take on that risk.

She believes that as investment managers, private equity fund participants need to be monitored for their ability to bear risk. It has become a trend that commercial banks, insurance companies and retirement funds are involved in private equity funds. When investment managers and major shareholders consider whether these institutions should be allowed to invest in a private equity fund, they should look at how these institutions view portfolio maximization, risk management and their own abilities to assume risk. Commercial banks and insurance companies should have steady operations. However, putting 1%- 2% of its capital into high-risk investments which they are prepared to manage should not impact the bank's normal operations. Every financial institution should have a balanced investment portfolio.

Ms. Xiaoling Wu believes China should develop more RMB investment funds. Currently, China is not lacking in capital because of its high foreign exchange reserves, trade surpluses, and capital surpluses. However, foreign private equity funds can bring in advanced technology and provide training. We hope that foreign private equity funds can play an active role in the RMB market and help us develop more RMB investment funds.

Fund exits are the focus for all private equity funds. Ms. Xiaoling Wu suggests that fund exits must start by preparing high-quality privately held companies for an initial public offering.

According to Ms. Wu, having a legitimate platform for equity share transactions is the key to enterprise growth. There are only a few mature large-sized companies which can be listed on the exchanges while more than 97% of enterprises are not able to do so. These companies need resources to fuel their growth, so establishing multi-level capital markets is a top priority.

“The environment would be difficult for quality private enterprises to grow if there were no transaction platform and private equity outside the public markets, which would not allow these quality companies to have an IPO,” says Ms. Xiaoling Wu. In order to create a favorable market environment for company growth, we must develop an OTC exchange, improve listing regulations, and establish markets for growth enterprises.

Ms. Wu believes that establishing multi-level capital markets should include the growth of private equity funds and is beneficial to the development of capital markets.

First of all, China’s fast economic growth has increased savings, which provide adequate and reliable resources for the development of capital markets.

Secondly, the external environment for capital markets has been improved significantly. Share restructuring has been completed. Financial policies and regulations on exits and protections for investors have been established. A national credit system is being created, and investment procedures are being enhanced. All these improvements provide favorable conditions for the development of capital markets.

Thirdly, with the improvement of financial laws, several legal obstacles that restrict capital markets development are being overcome. The Company Law and Securities Act, effective in 2006, made several breakthroughs in promoting multi-level capital markets. The laws also paved the road for establishing a transaction platform outside of public exchanges. In addition, the amendment of Partnership Enterprise Law provided a legal basis for creating partnerships in private equity funds.