The Ways Private Equity Funds Apply to Dodge Capital-flow Control

ZHANG Ming ( 张明)
Assistant Research Fellow, Studies of International Finance, Institute of World Economics & Politics, Chinese Academy of Social Sciences

Editorial note:The rapid growth of China’s economy and Chinese companies has drawn more and more foreign private equity funds to invest in China in recent years, and the scale and volume of such investment have continued to rise. However, China’s closed capital accounts and government restrictions on investing in sensitive and strategic sectors have limited the activities of these funds. How do they circumvent these restrictions? The author offers his views by analyzing a number of cases to shed light on the issue.

I. Introduction
Private equities are equity securities invested in companies that are not publicly traded on a stock exchange. Broadly speaking, private equity can refer to any investment before IPO, such as Venture Capital (VC), Leveraged Buyout (LBO), Pre-IPO, and even Private Investment on Public Equity (PIPE). The private equity in the narrow sense refers to pre-IPO investment, namely investment in companies that are relatively mature and ready for an IPO in the next few years. It is in this narrow sense that the private equity in this article is meant..

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