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Chinanews, Beijing, Apr. 5 – “In China, private fund is somewhat like a man's mistress. It is not officially recognized by society and is not protected by law,” Mr. Lv, a deputy general manager from a private funding company, recently used this metaphor1 to explain the situation of private funds in China to a reporter from the China Economic Herald2.
According to Li Yafang, a CPPCC National Committee member, there is about one trillion yuan of private funds in China. By April 3, capitalization in Shanghai and Shenzhen stock exchanges had exceeded 13 trillion yuan and private funds accounted for 8% of the total capitalization. While large amounts of private fund help activate3 the securities market, they might also contain great risks. The largest risk is that transactions of private funds are not protected by law. Chinese legal system has not covered private funds so far. The transactions are not recognized by law and consequently, buyers might bear great legal risks. The relationship between investors4 and trustees is based on an unlawful contract. Once there a dispute arises between them, investors will find it hard to seek legal protection. This may lead to some form of social instability, said Zhang Yu, a lawyer from the Shanghai Newhope Law Firm. An official from the China Securities Regulatory Commission said recently that supervision5 of private funds would become a major task for them in the next stage.
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