Equity crowdfunding is set to grow rapidly in China following a move which will help Chinese SMEs access overseas investment and lower the cost of financing. The first English translation of the Chinese financial regulators’ draft policy on equity crowdfunding is published today by BOP Consulting.
BOP is currently working in partnership with another UK company, ShareIn (regulated by the UK’s Financial Conduct Authority) to build the first equity crowdfunding solution for the combined Chinese and UK markets. With over 30 crowdfunding sites already operating in China, World Bank research suggests Chinese crowdfunding could be a $50 billion industry by 2025. BOP Associate Director, Conor Roche explains: “A lack of clarity and a fear of reprimands from what might have been considered illegal activity has stalled development of equity crowdfunding in China. That appears to be about to change.” Jude Cook, CEO of ShareIn says: “This is fantastic news for crowdfunding and we believe it will really open up financial trade routes between the UK and China. This news is perfectly timed for us to maximise on the huge market opportunity in China”.
Following a period of research and consultation with industry, the CSRC (China Securities Regulatory Commission) and Securities Association of China (SAC) has published draft regulations for equity crowdfunding in China. Conor Roche, based in Shanghai explains: “The publication followed a State Council executive meeting, chaired by Premier Li Keqiang in November, where he discussed the use of equity crowdfunding to help SMEs lower the cost of financing and access overseas investment through the Shanghai Free Trade Zone.”
Li Keqiang also spoke about his wish to establish a mechanism to help develop micro-financing in China and to carry out a pilot phase of equity crowdfunding. Cook explains: “The draft regulations indicate that the Chinese government intend to establish an accredited investor model of equity crowdfunding similar to that found in the US. It’s not quite the crowd but allowing the growing middle and wealthy classes to invest is certainly a step forward” The regulations define the role of a crowdfunding platform and also their responsibilities with regards to investors and companies. Crucially any new platform must register with the SAC and apply to be a member.
In order to qualify as an accredited investor an individual must pass one of the following criteria; invest at least RMB 1 million in a single project, have net assets of RMB 10 million or have net assets of RMB 3 million and an average annual income of RMB 500,000 for the past three years.
Key elements of the regulations include:
The equity crowdfunding platform has to be a legal Chinese company or a partnership enterprise with a Chinese company.
The platform must have minimum net assets of RMB five million (approximately £500,000).
The platform must employ a specialist in equity crowdfunding and have at least two senior management staff with o ver three years work experience in finance or IT
The platform must have real-name authentication and perform due diligence on both the entrepreneur and the investors
The platform cannot offer an online P2P lending service at the same time