United States private investment giant TPG Capital Inc plans to raise 5 billion yuan (US$735 million) for its first yuan-denominated private equity fund with Shanghai Pudong New Area government that will be used to invest in medium and large firms in the world's second-biggest economy.

The fund, named TPG China Partners, will invest in China's medium and large companies that are engaged in consumer, retail, finance and health care as well as other modern services industries, the firm announced yesterday in Shanghai.

TPG, which will open an office in Pudong, will start to raise funds in the next several months.

"TPG is one of the largest private equity firms in the world with a more than 15-year track record of successful investment in China," said Xu Lin, Party secretary of Pudong. "We are delighted to welcome TPG to open its on-shore investment platform in Pudong New Area."

The Chinese government wants to encourage the development of the private equity industry as part of its efforts to propel and sustain recovery in the economy, which has relied heavily on stimulus spending.

More foreign private equity firms, such as Blackstone Group and Carlyle Group, are setting yuan-backed funds to tap into robust growth opportunities.

"We look forward to contributing to Shanghai's flourishing financial industry, creating value for Chinese companies as we bring our global scale, and our operational and investment expertise to China," said Stephen Peel, managing partner of TPG Asia.

TPG, which manages about US$57 billion in assets, has made several investments in China, including Lenovo Group Ltd, WuMart Stores Inc and China Grand Automotive Services Co, Shenzhen Development Bank and Daphne.