Most private funds in the PRC are structured as limited partnerships or contractual funds. Although funds can be formed as limited companies, in practice limited company funds are relatively rare because they are generally less tax-efficient, and the PRC’s Company Law does not support the concept of a “management share” as is available in some other jurisdictions and that gives the holder of a management share similar power to a general partner.

Private Securities Investment Funds

Private securities investment funds typically take the form of a contractual fund. The main competitive advantages that a contractual fund has over a limited partnership are as follows:

• a contractual fund can have up to 200 investors, whereas a limited partnership only allows up to 50 partners;
• a contractual fund is not a legal entity that needs to be registered with the enterprise registration authority, the Administration for Market Regulation (AMR), and therefore its subscription and redemption processes are more efficient, without needing to go through the registration process; and
• the fund manager of a contractual fund does not withhold the income tax for individual investors as a matter of general practice, whereas a limited partnership fund must withhold income tax for individual investors.

Private Equity Funds

Limited partnership

In the PRC, most private equity funds are structured as limited partnerships, for the following reasons.

• The PRC’s Partnership Law is flexible, and a limited partnership fund can accommodate most of the international practice of private equity funds.
• In examining a company looking to launch an IPO, the CSRC generally treats a shareholder in the form of a contractual fund as problematic because it is hard to trace the beneficial owners behind the contractual fund. Therefore, a fund with a strategy of exiting from its portfolio companies by way of an IPO will be formed as a limited partnership, instead of as a contractual fund.

Contractual fund

Due to the difficulties of listing real estate companies or assets in China, a real estate fund’s exit strategy usually excludes an IPO or securitisation, and therefore it may be formed as a contractual fund.

Limited company

Some of the funds funded by state-owned enterprises (SOEs) may use the form of a limited company. The PRC’s Partnership Law provides that an SOE shall not act as the general partner; but, in practice, an SOE under the Partnership Law is interpreted in a narrow way – eg, the subsidiary of an SOE may be exempted. However, some SOEs may still prefer a fund in the form of a limited company, where no SOE will need to act as the general partner. 

Fund managers

Most private fund managers are structured as limited companies, though some may be structured as limited partnerships.

Establishing a Legal Entity and Registering It With the AMAC as a Private Fund Manager

The form of a legal entity as a limited company or limited partnership must first be established. The name of such entity must include “private fund”, “private fund management” or “venture capital investment”, and the business scope of such entity must include “private funds management”, “private securities investment funds management”, “private equity funds management” or “venture capital funds management” and other words reflecting the characteristics of the private equity fund it intends to manage.

The timeline depends on the location where the entity is established, and may vary from one month to six months, or even longer. Some local governments set high standards for accepting the establishment of such entities, which makes it extremely difficult to complete such establishment. The entity should apply to the AMAC for registration as a private fund manager within 12 months from the date of establishment, except in cases where registration needs to be deferred due to changes in policies of the relevant state departments, etc. To register the legal entity with the AMAC as a fund manager, a legal opinion must be issued by a qualified PRC law firm on whether the applicant has fulfilled the AMAC’s requirements regarding the applicant’s:

• name;
• business scope;
• number of employees;
• capital contributions; and
• relevant investment experience of its officers, etc.

It usually takes three to four months to complete registration with the AMAC, but there is no guarantee of this timeframe. The AMAC reserves much discretion and an applicant satisfying all the written requirements may still fail to complete registration due to inconsistency with the AMAC’s internal principles or otherwise. 

Establishing a Fund Vehicle

For private equity funds, the fund vehicle, usually in the form of a limited partnership with a business scope containing equity investment, may be established before the first closing of the fund, so that the fund vehicle may admit investors upon first closing. Again, the timeline depends on the location where the entity is established, and may vary from one month to six months, or even longer. Some local governments set high standards for accepting the establishment of such fund vehicles, which makes it extremely difficult to complete such establishment.

Fundraising

The timeline for the fundraising process depends on various commercial factors, and is subject to various requirements regarding marketing of the fund, risk disclosure, verification of Qualified Investors, etc.

Fund-Filing With the AMAC

After the first closing and first instalment of the capital contribution, the fund is filed with the AMAC by the fund manager, and the process may take one to two months.

Regarding the debt of private funds, investors shall generally be protected by limited liability, as follows.

Limited Partnership Funds

Limited partners shall be liable for the debt of the limited partnership fund to the extent of their subscribed capital – ie, their capital commitment.

Contractual Funds

Though a contractual fund, as a legal form, is frequently used for setting up most private securities investment funds, and occasionally for private equity funds, there is essentially no explicit law dealing with contractual funds.   

According to the Securities Investment Fund Law, investors of public funds and private securities investment funds shall only be liable for the debt of the fund to the extent of their investments, which is read as applicable to a private securities investment fund in the form of a contractual fund. Also, the authors tend to believe such limited liability protection shall apply to investors of a private equity fund in the form of a contractual fund.

Limited Company Funds

For a fund in the form of a limited company, investors (ie, shareholders) are liable to the extent of their subscribed capital.

In the PRC, private funds are subject to ongoing disclosure obligations.

Fundraising Information Disclosure

Marketing documents such as the private placement memorandum must include basic information on:

• the fund and the manager;
• custody arrangements (if any):
• investment of the fund;
• distribution of proceeds; and
• performance fee arrangements, etc.

The content of these should be substantially the same as the fund contracts. In addition, a risk disclosure document is required to be signed by investors as a filing document, which must fully disclose various risks of the fund.

Fund Operation Information Disclosure

Periodic reporting obligation

The content and frequency of disclosure requirements differ according to the type of fund. For private securities investment funds, monthly reports must be submitted to the AMAC, disclosing information on the fund size, unit net value and investors. However, private equity funds are only required to report quarterly in respect of the net asset value, and key financial and investment information.

Disclosure requirement on specific events

When certain events occur, disclosures are required to be made to investors in a timely fashion. According to the AMAC’s rules, such events would normally have a significant impact on investors’ interest, including:

• change of investment scope of the fund;
• change of the fund manager or the custodian; and
• significant related-party transactions.

Consequences of failure to fulfil disclosure requirements

The AMAC conducts inspections on fund information disclosure from time to time and may take disciplinary actions against the responsible person, depending on the seriousness of the case.

If a private fund manager fails to submit periodic reports in a timely manner, the AMAC may suspend the fund manager’s application for filing a new fund until such obligation is fulfilled.

In the PRC, private funds can only be marketed to Qualified Investors, which includes individual investors and institutional investors.

The authors see increasingly more individual investors investing in private securities investment funds, and more institutional investors (ie, corporate investors, SOEs, government guiding funds, insurance companies, etc) investing in private equity funds. Institutional investors also have different preferences depending on their type. For example, insurance companies would normally invest in funds established by top-tier fund managers, and corporate investors tend to invest in specific industrial funds for synergy with their own business. 

Fund Managers

In the PRC, private fund managers are typically structured as limited companies, and some take the form of limited partnerships.

Fund Structures

For limited partnership funds, fund managers usually also serve as general partners, but there is a trend of separation of the fund manager and the general partner, who is often a subsidiary of the fund manager. 

For contractual funds, parties to the fund contract include investors, the fund manager and the custodian.

For limited company funds, a separate fund manager may or may not be one of the shareholders of the fund. Also, it is possible for a limited company to have an internal fund management team without a separate fund manager.

Private funds can only be invested in by Qualified Investors.

Qualified Investors are those institutions and individuals who invest an amount of not less than CNY1 million in a single private fund, and accord with the following standards:

• with respect to institutions, their net assets must be no less than CNY10 million; or
• with respect to individuals, their financial assets (such as bank deposits, stocks and bonds) must be no less than CNY3 million, or their personal average annual income in the last three years must be no less than CNY500,000. 

Where an investor has no legal personality (such as partnerships and contracts), such investor shall be looked through to verify whether those investors holding interests in such investor are Qualified Investors, with the exemptions applicable to certain investors, including:

• social welfare funds;
• private funds;
• bank asset management products;
• Qualified Foreign Institutional Investors (QFIIs) and Renminbi Qualified Foreign Institutional Investors (RQFIIs) approved by the CSRC; and
• private fund managers and their employees who invest in the private funds under their management.

These shall be regarded as Qualified Investors and are not subject to the above “look-through” rules. QFIIs and RQFIIs refer to foreign institutional investors that have been approved by the CSRC to make securities and futures investments in the PRC with offshore funds, including overseas fund management companies, commercial banks, insurance companies and securities companies.

In general, the CSRC is the regulator of the listed securities and futures market, and also supervises and administers the private funds market. Under the supervision of the CSRC, the AMAC is a self-disciplinary organisation, but the authors tend to believe it is also the de facto regulator of the private funds industry. It has issued a set of self-disciplinary rules on the registration of private fund managers, the filing of private funds, disclosure requirements, etc.

In 2014, the CSRC promulgated the Interim Measures for the Supervision and Administration of Private Investment Funds, which provide a general regulatory regime for the private funds industry. The AMAC subsequently released a series of detailed rules.

In January 2021, the CSRC promulgated the Provisions on Strengthening the Supervision of Private Funds (the “Private Funds Provisions”), which outline the latest regulatory framework regarding private funds. In June 2022, the AMAC promulgated the new List of Requirements for Private Fund Manager Registration, the Key Points of Private Equity Fund Filing and the Key Points of Private Securities Investment Fund Filing, stipulating the latest regulations regarding fund manager registration and the filing of private funds.

In February 2023, the AMAC promulgated the Measures for Registration and Filing of Private Investment Funds (effective on 1 May 2023), further summarising, revising and highlighting regulations regarding fund manager registration and the filing of private funds.

In July 2023, the State Council issued the Regulation on Supervision and Administration of Private Investment Funds (effective on 1 September 2023 (the “Regulation”)). The Regulation essentially follows and emphasises the pre-existing rules, but the authority of the Regulation is higher than those rules issued by the CSRC and AMAC. In September 2023, the AMAC released a series of detailed new rules regarding the filing of private funds (see 4.1 Recent Developments and Proposals for Reform).

Under the preceding regulations, private funds are not permitted to directly or indirectly make investments that are prohibited or restricted by the government, or that are inconsistent with national industrial policies, environmental protection policies or land administration policies, with the exception of investments in listed securities. Investing in loans (including disguised loans) and providing guarantees are also prohibited by the AMAC. However, for the purpose of equity investment, if the borrowing or guarantee period is less than one year, private equity funds may provide loans or guarantees to portfolio companies. In addition, private funds may not invest in credit assets such as factoring assets, financial leasing assets or pawn assets, nor make investments that have unlimited liability.

Generally, only local service providers are allowed to provide services in China to private funds. 

For non-local service providers providing services outside China to Chinese private funds/fund managers, PRC law is silent regarding the regulation of registration requirements, etc. Considering a Chinese fund is unlikely to have an offshore account or other offshore operations, it seems unlikely that a Chinese fund would engage a non-local custodian or administrator.

Only fund managers that have been duly registered with the AMAC are permitted to manage private funds in China. There are no regulatory requirements expressly applicable to non-local managers of private funds. A non-local manager’s marketing activities in China for their offshore funds are not clearly dealt with by PRC law, and professional advice should be sought before conducting such activities. 

See 2.1.2 Common Process for Setting Up Investment Funds.

Under PRC law, there is no clear definition of pre-marketing. With reference to the EU’s definition, pre-marketing activities may be understood as including provision of information on investment strategies or investment ideas on behalf of a private fund manager to qualified investors, and testing investors’ interest in a private fund before the commencement of fundraising, but without providing such information as contained in the fund marketing documents (see 2.1.4 Disclosure Requirements).

For the provision of information on investment strategies or investment ideas, the Measures for the Administration of the Fundraising of Private Investment Funds (the “Fundraising Measures”) expressly allow private fund managers to market their investment strategies through legitimate and public means, indicating a relaxed attitude towards regulating such activities.

PRC law is silent on the testing of investors’ interest in a private fund, but before such testing it is advisable to complete the following:

• determination of specified investors; and
• suitability matching (see 2.3.10 Investor Protection Rules).

In general, the marketing of private funds is regulated by:

• the Securities Investment Fund Law;
• the Fundraising Measures;
• the Measures for the Administration of the Appropriateness of Securities and Futures Investors promulgated by the CSRC (the “Appropriateness Measures”); and
• the Private Funds Provisions.

Public Offering Should Be Avoided During Private Fund Marketing

In the PRC, approval is required for marketing to the general public. According to the Securities Investment Fund Law, raising funds from non-specific targets or issuing securities to more than 200 specific targets accumulatively in the PRC will be regarded as a public offering and should be subject to the CSRC’s approval.

Private fund managers and placement agents must not disseminate information to non-specific targets via public communications media (such as newspapers, radio stations, TV or the internet) or through lectures, seminars, analysis meetings, bulletins, leaflets, short messages, blogs, emails or other means. However, marketing through an official website or the internet with a mechanism that is only accessible to specific targets is not considered a public offering.

Restrictions on Content of the Presentation

Certain content is strictly forbidden to be used when marketing, including:

• direct or indirect promises to investors that there will be no losses of the investors’ funds, or that there will be a minimum income; or
• using exaggerated words, such as “safe”, “promise”, “secure”, “avoidance of risks”, “guaranteed”, “high income” or “no risk”.

Private funds can only be marketed to Qualified Investors. 

Under PRC law, authorisation or notification is not required by the national regulator for marketing private funds.

Private fund managers who have marketed and closed a private fund must perform the following duties:

• fund filing with the AMAC (see 2.1.2 Common Process for Setting Up Investment Funds);
• information disclosure (see 2.1.4 Disclosure Requirements); and
• periodic reporting obligation (see 2.1.4 Disclosure Requirements).

Special Protection for General Investors

Qualified Investors that may invest in private funds are broadly split into general investors and professional investors.

General investors can be further classified into five types (C1 to C5), based on their risk tolerances. Special protections will be provided to general investors with respect to information disclosures, risk warnings, suitability matching, etc. For example, fundraisers may not actively conduct marketing of a fund to general investors whose tolerance is lower than the risk level of the fund. Investors who belong to the lowest risk tolerance category are not allowed to invest in any fund with a risk rating above their risk tolerance. However, investors may invest in relatively riskier funds after accepting special risk warnings that are issued by fundraisers in writing.

Fair Treatment to Investors

Under the Private Funds Provisions, all investors of a private fund must receive fair treatment. 

Regulatory Reporting Requirements

As well as submitting periodic reports to the AMAC (see 2.1.4 Disclosure Requirements), private fund managers must also disclose fund operation information to investors, and must submit information disclosure reports to an AMAC online system for records. While private securities investment fund managers should issue an information disclosure report to investors monthly, quarterly and annually, private equity fund managers are only required to submit semi-annual disclosure reports and an annual disclosure report. As mentioned in 2.1.4 Disclosure Requirements, when certain events occur, private fund managers are required to report to the AMAC within ten business days and make a disclosure to investors. In accordance with the AMAC’s rule, significant matters specifically include:

• change of the fund manager and the custodian;
• major changes to the fund contract;
• change of type of private fund;
• change of fund service institutions; and
• other events that may have a significant impact on the continued operation of the fund, the interests of investors or the net asset value of the fund.

The AMAC accepts telephone enquiries as well as email enquiries regarding the relevant regulations and compliance requirements. Face-to-face meetings are generally not available.

The law is unclear about the form of public funds – eg, a limited partnership, a trust or otherwise. 

Under the Securities Investment Fund Law:

• a public fund is not a legal entity;
• the fund manager is entrusted to manage the assets of the public fund; and
• the assets of the fund are separate from the assets of the fund manager.

For those issues that the Securities Investment Fund Law does not provide for, the PRC Trust Law shall apply. Therefore, the authors tend to believe that the form of a public fund should be similar to a trust.

Investors’ interests in a public fund are called fund units.

Public funds can be operated as open-ended or closed-ended. After the first open-ended public fund was approved in 2001, open-ended public funds have developed rapidly and have become the most popular form of public fund. As of September 2023, there were 9,885 open-ended public funds; whereas the number of closed-ended public funds was 1,336.

As a public fund is not a legal entity, the subscription or redemption of fund units will not trigger the registration process with the AMR, which suits the operation of open-ended public funds. 

Based on the list of public fund managers publicised by the AMAC, public fund managers are all structured as limited companies in the PRC.

The common process for setting up a public fund in the PRC includes the following steps.

Setting Up a Public Fund Manager

A public fund manager can be set up by doing the following.

• Establishing a new public fund management company.
• Obtaining a public fund manager licence for an existing asset management institution, such as for:
1. asset management subsidiaries of securities companies;
2. insurance asset management companies;
3. wealth management subsidiaries of commercial banks; or
4. private securities investment fund managers.

In May 2022, the CSRC released Measures for Supervision and Administration of Public Securities Investment Fund Managers (effective on 20 June 2022) and supplementing rules, which impose stricter requirements for setting up a public fund manager (such as a higher requirement regarding financial status of the major shareholders of a newly established public fund manager).

Setting up a new public fund management company

To set up a public fund management company, approval of the CSRC must first be obtained after satisfying various strict requirements. High-standard requirements also apply to the company’s major shareholders in respect of their registered capital, net asset scales, etc.

After the submission of the application documents, the CSRC may require the applicant to supplement the documents before it accepts the application. Once the application documents are accepted, the CSRC shall decide whether to issue the approval within six months. In practice, it is hard to obtain approval from the CSRC, which determines whether to grant the approval on a discretionary basis. Therefore, the actual time for obtaining approval is uncertain, depending on the background of the prospective shareholders of the fund manager, etc. 

Within 30 days of receipt of the CSRC’s approval, the applicant must register the fund management company with the AMR. The new fund management company is established upon the issuance of a business licence by the AMR. 

After the establishment of the fund management company, the company must prepare for operation by satisfying various requirements regarding its office, IT system, employees, etc, to be inspected by the CSRC. The preparation period may last as long as six months or so. The public fund management company may only start business operations after passing the inspection by the CSRC. 

Public fund manager licence for existing institutions

Subject to certain conditions, asset management institutions (such as asset management subsidiaries of securities companies and insurance asset management companies, wealth management subsidiaries of commercial banks, or private securities investment fund managers) can also apply for the public fund manager licence from the CSRC.

In general, an applicant must fulfil the following conditions:

• at least three years’ management experience of securities assets with good performance;
• sound corporate governance, with a sophisticated internal mechanism and effective risk-control system;
• good business performance and financial standing for the last three years;
• no significant violation of the applicable laws and regulations; and
• the number of employees who have obtained the qualification for fund practice must not be less than 30 in principle.

Other requirements include a minimum scale of assets under management, construction of information systems, and so on.

After submission of the application documents, the CSRC may require the applicant to supplement the documents before it accepts the application. Once the application documents are accepted, the CSRC shall decide whether to issue the approval within 20 business days, which may be extended to 30 business days subject to the CSRC’s internal approval. For similar reasons, the actual time for obtaining the approval is uncertain.

After the application is approved, the applicant must further prepare for public fund management business by satisfying various requirements, such as setting up a specific department for fund business and the establishment of a fund investment decision-making process, to be inspected by the CSRC. The preparation period may last as long as six months or so. The public fund management company may only start public fund management business after passing the inspection by the CSRC. 

Fund registration with the CSRC

A licensed public fund manager may market and raise public funds subject to the relevant requirements. 

A prospective public fund must be registered with the CSRC before being marketed to the general public. In general, a public fund to be marketed should have a specific investment direction, and the name must indicate its type and features. The application documents for fund registration generally include:

• an application report;
• a draft fund contract;
• a draft custody contract;
• a draft prospectus; and
• a legal opinion issued by a PRC law firm. 

The CSRC may require the applicant to supplement the documents before it accepts the application for registration of a new public fund. Once the application documents are accepted, the CSRC shall decide whether the public fund can be registered for fundraising within six months. In practice, some public funds may complete registration within one month.   

Fundraising and filing with the CSRC

The fundraising period must not exceed three months from the date of offering. Upon the expiry of the fundraising period, the manager must engage an accounting firm to conduct capital verification for the fund and file the public fund with the CSRC, which will grant a written confirmation within three business days.

Regarding the debt of public funds, investors are protected by limited liability and only bear the risks to the extent of their investment in the fund.

In general, public fund managers and custodians must disclose fund information to investors and publicise fund operation information via newspapers and websites recognised by the CSRC.

Specifically, the following information must be disclosed:

• the prospectus, the fund contract and the fund custody agreement;
• the fundraising information;
• the announcement on the listed fund units;
• the net asset value of the fund and fund units;
• the subscription and redemption prices;
• the quarterly reports, semi-annual reports and annual fund reports;
• interim reports;
• the resolutions of the fund unit-holders’ meeting;
• major personnel changes of the fund custodian or manager;
• legal proceedings or arbitration related to fund assets, the fund management or the fund custody; and
• other information to be disclosed as required by the CSRC.

False records, misleading statements or material omissions, predictions of investment performance and promises regarding income are strictly prohibited.

Subject to fund marketing rules, including the Appropriateness Measures, public funds may be offered to the general public. 

Based on their investment scope (as further explained in 3.3.1 Regulatory Regime), public funds can be classified as:

• share investment funds;
• bond funds;
• money market funds;
• hybrid funds; and
• funds of funds.

Except for low-risk money market funds (which are the most popular for both individual and institutional investors), institutional investors generally prefer bond funds, while individual investors generally prefer hybrid funds (ie, funds that can invest in shares, bonds or other funds) and share investment funds.

Based on the list of public fund managers publicised by the AMAC, public fund managers are all structured as limited companies in the PRC.

The Appropriateness Measures also apply to public funds. As previously mentioned, investors are split into general investors and professional investors, and general investors can be further classified into five types (C1 to C5), based on their risk tolerances. Fundraisers may not market a fund to any investor whose risk tolerance is lower than the risk level of the fund without solicitation of the investor. Investors of the lowest risk-tolerance category shall not be accepted to invest in any fund with a risk rating above their risk tolerance unless a special risk warning in writing has been provided.

The Securities Investment Fund Law is the basic law regarding the regulation of retail funds. The CSRC, as the regulator of the public fund industry, has accordingly promulgated a series of regulations in relation to the establishment of a fund management company, fund registration, and the operation and management of public funds.

A public fund may only invest in listed securities, futures and derivatives, depending on the type of the fund. Except for hybrid funds (ie, funds that can invest in shares, bonds or other funds), the limitations on different types of public funds are as follows:

• for share investment funds, 80% or more of the fund assets must be invested in stocks;
• for bond funds, 80% or more of the assets must be invested in bonds;
• for money market funds, all assets must be invested in money market instruments; and
• for funds of funds, 80% or more of the assets must be invested in other funds.

In addition, public funds are subject to certain restrictions with respect to the proportion of the investment. For example, for each public fund, the value of securities of a single company held by the fund must not exceed 10% of the fund’s net asset value.

Generally, only local service providers are allowed to provide services in China to public funds.

For non-local service providers providing services outside China to Chinese public funds/fund managers, under Shanghai-Hong Kong Stock Connect (a cross-boundary investment scheme that connects the Shanghai Stock Exchange and the Hong Kong Stock Exchange), Chinese fund managers are permitted to engage Hong Kong entities to provide investment advisory services such as issuance of a research report on southbound trading (ie, domestic investors in China investing in securities listed in Hong Kong). A Hong Kong entity providing investment advisory services must comply with the relevant provisions under PRC law and Hong Kong law.

In general, the Hong Kong service provider must have obtained the licence on providing investment advice from the Hong Kong regulatory authority, the Securities and Futures Commission (SFC). Where a Chinese public fund manager is provided with such services, it must file documents – including the service agreement, an undertaking letter issued by the Hong Kong service provider and relevant certificates – with the CSRC.

Except for the above, the law is silent regarding the registration requirements for other non-local service providers. Considering a Chinese public fund is unlikely to have an offshore account or other offshore operations, etc, it seems unlikely that a Chinese fund would engage a non-local custodian or administrator.

As mentioned in 3.1.2 Common Process for Setting Up Investment Funds, only fund management companies and asset management institutions that have been approved by the CSRC are permitted to manage public funds in China. 

For non-local managers’ marketing activities in China for their offshore funds, according to the Interim Provisions on the Administration of Recognised Hong Kong Funds (the “Hong Kong Funds Provisions”), Hong Kong public funds – including unit trusts, mutual funds and other collective investment schemes – may be marketed to the general public in China after registration with the CSRC. The registration is subject to strict conditions regarding the fund and the fund manager. For example, the Hong Kong fund must be established and operated in compliance with Hong Kong law, and must be approved to have a public offering and be regulated by the SFC. Also, the Hong Kong fund manager must be registered in Hong Kong and licensed to conduct asset management.

In addition, a prospective Hong Kong fund manager must engage a Chinese public fund manager or a custodian approved by the CSRC as its local representative.

See 3.1.2 Common Process for Setting Up Investment Funds.

Under PRC law, there is no clear definition of pre-marketing. With reference to the EU’s definition, pre-marketing activities may be understood as including provision of information on investment strategies or investment ideas on behalf of a public fund manager to investors, and testing investors’ interest in a public fund before the commencement of fundraising, but without providing such information as contained in the fund marketing documents (see 3.3.6 Rules Concerning Marketing of Retail Funds).

Currently, PRC law is silent on pre-marketing activities, but it is advisable to conduct the risk assessment and suitability-matching procedure (see 3.2.3 Restrictions on Investors) before testing investors’ interest.

In the PRC, the rules applicable to the marketing of public funds include:

• the Securities Investment Fund Law;
• the Measures for the Operation and Administration of Public Funds;
• the Measures for the Administration of Information Disclosure of Public Funds; and
• the Appropriateness Measures.

The main rules that apply to the marketing of public funds are as follows.

Fund Registration With the CSRC

As discussed in 3.1.2 Common Process for Setting Up Investment Funds, only public funds that have been registered with the CSRC may be marketed to the general public.

Fundraising Information Disclosures

The above regulations provide detailed requirements on the information that must be disclosed for fundraising of public funds. For example, the marketing document of a public fund must include the following information:

• basic information on the fund manager and the fund custodian;
• a summary of the contents of the fund contract and the fund custody agreement;
• the price, cost and duration of the fund units;
• the proportions of the remuneration and other related expenses of the fund managers and fund custodians; and
• risk warnings.

Risk Assessment and Matching Investors With Suitable Funds

Under the Appropriateness Measures, fundraisers may not actively conduct marketing of a public fund to general investors whose tolerance is lower than the risk rating of the fund (see 3.2.3 Restrictions on Investors).

Upon registration of the public fund (see 3.1.2 Common Process for Setting Up Investment Funds), public fund managers may conduct marketing towards the general public.

As discussed in 3.1.2 Common Process for Setting Up Investment Funds, only public funds that have been registered with the CSRC may be marketed to the general public.

Public fund managers who have marketed and closed a public fund must perform the following duties:

• information disclosure (see 3.1.4 Disclosure Requirements);
• conducting separate management and separate accounting for different fund assets;
• distributing earnings to fund unit-holders promptly;
• convening fund unit-holders’ general meetings according to the fund contract; and
• conducting accounting for the fund and preparing the financial accounting reports, the half-yearly and annual fund reports for the fund, etc.

Statutory Reporting Requirements

Public funds are subject to stricter reporting requirements than private funds. Public fund managers must publicise quarterly reports, semi-annual reports and annual reports of public funds. In addition, fund managers must publicise the net asset value of the fund and the fund units at least once a week.

The CSRC accepts both telephone and email enquiries from the general public. Face-to-face meetings are generally not available.