During recent years, RMB industry investmentfund’s exposure is increasing. Starting fromthe Bohai Industry Investment Fund, a boomof constitution of industry investment fund,represented by the planning and building ofregional industry funds in Guangdong and Suzhou,has begun around China.

From being built up to signing the first investmentitem, Bohai Industrial Investment Fund isproviding a precious experiment for the developmentof local industry funds.

As an important exploration for Tianjin BinhaiNew Area in expanding direct financing channels,the first Chinese-invested industry investmentfund, Bohai Industrial Investment Fund,was set up in Tianjin on December 30, 2006. Itwas RMB 20 billion yuan in size and had raisedRMB 6.08 billion yuan with its initial placement.Investors include National Social Security FundCouncil, National Development Bank, PostalSavings and Remittances institution of theState Post Bureau Post, Tianjin Jinneng InvestmentCompany etc..

Analysts comment that the constitution of BohaiIndustrial Investment Fund is the achievementfrom carrying out the comprehensivereform and experimental development in theBinhai New Area and is a result of acceleratingthe financial reform and innovation. It is a majorbreakthrough for the reform and innovationof China’s direct financing system. It starts anew era in the development of RMB industryinvestment fund.

Bohai Industrial Investment Fund can be calledNo 1 in four areas: it is China’s first large-scaleRMB industry investment fund, China’s firstcontract industry investment fund, China’s firstindustry investment fund for specific investors,and China’s first fully market-oriented industryinvestment fund.

As investing mode is concerned, the BohaiIndustrial Investment Fund takes the matureinternational experience as a reference. Itselects the high-quality enterprises within acertain range of risks. Through its participationin the management of the target companies, itoptimizes their governance structure, improvestheir operational and financial situations, helpsthem to create value, and at last takes benefitfrom the sale of shares it held.

At the end of 2007, the Bohai Industrial InvestmentFund inked the first investment agreementwith Tianjin Pipe Group CorporationLimited, marking that China’s first Chineseinvestedindustry fund was officially launched. According to the agreement, the fund investedabout RMB 1.5 billion yuan, and the stock ofTianjin Pipe Group Corporation held by TianjinPipe Group Corporation Limited is partly transferredto the strategic investor.

Industry investment fund, which is oftenreferred to as private equity fund in foreigncountries, is a funding mode that opposite tosecurities investment funds. It refers to the equityor quasi-equity investment to the unlistedbut with high growth potential companies. Thefund company may be involved in the operationand management of the invested enterprises,and after the development and maturationof the enterprises, the fund may achievecapital appreciation through share transfer.

Following the Pudong New Area of Shanghai,the Binhai New Area is China’s second comprehensivereform and experimental developmentpilot area. As part of China’s regionalcoordinative development program, the BinhaiNew Area has been incorporated into nationaldevelopment strategies and given the priorityto act and experiment in financial reform andmany other areas.

The whole process of constitution and investmentof the Bohai Industrial Investment Fundhas set a precedent in exploring the developingpath for Chinese industry investment fund andexpanding direct financing channels.