(Yicai) Jan. 12 -- Shanghai introduced measures this week that provide tax and other financial incentives to equity investment companies that set up in the city or relocate to it.

The key breakthrough is the truncated registration process, which is shortened to just seven working days, said Tian Huafeng, president of Shanghai Jinpu Intelligent Technology Investment Management, after the new measures were rolled out on Jan. 10.

The measures state the need to build an equity investment cluster that will help Shanghai to leverage its role as a financial center, said Sun Jiatao, executive president of Haiwang Capital.

In the past, Shanghai’s development as a financial center focused on the settlement and clustering of licensed institutions such as banks, insurers, and brokerages, and it was hard for equity investment firms to set up shop, according to a senior manager at a private equity firm. The latest policy will make it easier for them to relocate to the city, he added.

Another goal is to establish the Shanghai Science and Technology Innovation Guidance Fund to give full play to the leverage and amplification effect of fiscal funds.

Before settling somewhere, most equity investment firms take into consideration how much the local government can contribute to the funds they manage, Sun said, so the increased scale of startup and angel investment guidance funds should make Shanghai more attractive to outstanding fund management firms from across China.

Under the measures introduced, a venture capital firm can deduct 70 percent of the amount invested from its taxable income if it directly invests in technology companies in the seed or startup stage for at least two years. That is a major tax break, according to an investment manager at a PE firm.

Industry insiders told Yicai that they are most concerned about measures to unblock the exit channels for equity investment and support equity fund managers to go public. 

Exiting investments is a major issue for funds, so the measures propose improving the efficiency of mergers and acquisitions, facilitating the domestic and international listing channels of invested companies, enhancing the functionality of fund share transfer platforms, and launching a pilot program to distribute fund managers’ stock investments to their investors.

M&As will become the main exit route for some time, Sun predicted. Since China’s PE funds have CNY20.61 trillion (USD2.9 trillion), it is impossible for all of them to exit through initial public offerings, he said. The pilot program for equity distribution to investors should also greatly ease the pressure on PE managers, Sun added.

The new measures also aim to support the listing of equity fund managers and bonds sales by equity investment firms, though not many investment firms have gone public with their investment businesses.

IPOs are perceived to be temporarily restricted, so progress in listing equity investment companies is not expected in the short term, industry insiders told Yicai.

Editors: Liao Shumin, Martin Kadiev