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Beijing has told Communist party cadres to stay away from private equity as President Xi Jinping’s anti-corruption drive intensifies.
Officials have been banned from pouring their savings into domestic Chinese private equity funds, according to state media this week. The ban officially aims to tackle the myriad corruption risks that accompany cadres indirectly taking shares in companies.
The party last year required top officials and their relatives to report any private equity investments or roles they held in the industry. This year’s ban on investing in private equity funds is targeted at mid- to high-level cadres and focuses on private funds which require minimum investments of Rmb1mn ($137,000). State media reports did not say whether the ban extended to relatives.
State media said China’s graft-busting agency, the Central Commission for Discipline Inspection, had uncovered cases of officials providing benefits to groups they had invested in through PE funds, including helping the companies to sell shares in public markets. “They reaped huge gains after the company’s public listing,” the report said.
“Those who have been verified to have invested in private equity funds should be treated as having violated rules against operating businesses,” the CCDI said in Research on the Application of Disciplinary Inspection and Supervision Laws, a book published in the summer.
As well as smaller local private funds, there is an established industry of Chinese private equity firms. These have long been a draw for the “princeling” sons and daughters of top officials. The son of former vice-premier Liu He founded Skycus Capital, which reaped rewards from investing in spin-offs from Tencent and JD.com. Alvin Jiang, the grandson of China’s former president Jiang Zemin, helped set up Hong Kong-based private equity firm Boyu, an early backer of Alibaba.
The ban comes as Xi shakes up the finance industry. State-owned banks have cut salaries and perks for staff this year while the party’s anti-corruption agency has investigated dozens of top bankers and officials responsible for financial regulation.
Meanwhile, China’s spy agency on Wednesday also said it was turning its sights on the country’s financial system, claiming “state security agencies are the steadfast guardians of financial security!” in a social media post.
The state security agency said it was working to ferret out risks and scrutinising “naysayers” who were trying to whip up panic in the country’s battered markets.
“There are not only ‘bears’ and ‘short sellers’, but also ‘naysayers’ and ‘undercutters’ who attempt to shake international investment confidence in China and trigger domestic financial turmoil,” the Ministry of State Security said in a post on its recently established WeChat account.
The agency pledged to “legally crack down on and punish illegal and criminal activities that endanger national security within the financial sector”.
Additional reporting by Will Langley in Hong Kong and Nian Liu from Beijing
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