Hong Kong-based brokerage CLSA and China's state-run Shanghai Guosheng (Group) Co plan a private equity fund with an estimated size of 10 billion yuan (1.4 billion dollars), the two said Tuesday.

The companies plan to form a joint venture -- Guosheng CLSA (Shanghai) Industrial Investment Management Co -- by the end of the year to launch the yuan-denominated fund, CLSA and Guosheng said in a joint statement.

"There is significant opportunity for private capital in China," said CLSA, a regional brokerage unit of French bank Credit Agricole, in the statement.

The planned fund will target the renewable energy, consumer and heavy machinery sectors, the companies said, adding that all investors must be mainland Chinese companies.

CLSA is the latest foreign institution to announce plans to launch a domestic yuan-denominated fund in China.

US private-equity firm Blackstone Group announced Friday it plans to launch a five-billion-yuan fund focusing on Shanghai-based investment, which would be the firm's first regional yuan-denominated private equity fund.

Under a memorandum of understanding signed by Blackstone and the local government, Blackstone Zhonghua Development Investment will be located in the Pudong New Area, a development zone in the financial hub, and give priority to investments in Shanghai and neighbouring areas.

Shanghai, which aims to develop itself into a global financial and shipping centre by 2020, is pioneering the use of foreign equity funds denominated in the Chinese currency and financed by local investors.

The Pudong district government issued new rules in June, so far effective until mid-2010, aimed at making Shanghai the first city in China to allow foreign firms to register locally as equity investment managers.

With local registration, foreign institutions are less subject to regulatory hurdles, particularly foreign exchange restrictions, as they manage funds for local investors.