Invest in Hainan, a comparison of Hainan QDLP policies with mainland China

The Hainan Provincial Financial Supervision Administration, the Hainan Branch of the State Administration of Foreign Exchange, the Hainan Market Supervision Bureau and the Hainan Securities Regulatory Bureau have jointly issued Interim Measures for Hainan Province to Carry out a Qualified Domestic Limited Partner (QDLP) Overseas Investment Pilot Program since April 8th.

In 2020, Hainan Province issued the Interim Measures for Hainan Province on Domestic Equity Investment for Qualified Foreign Limited Partners (QFLP), which means that the Hainan pilot cross-border investment project has been officially launched.

China’s domestic investors can make outbound investment through foreign exchange purchase as follows:

1) ODI (outbound direct investment) refers to overseas investment by Chinese enterprises and organizations in the form of cash, physical assets or intangible assets.

The implementation of ODI requires the approval/recording of overseas investment activities by the commerce department, the approval/recording of overseas investment projects by the Development and Reform Commission, and the foreign exchange registration of banks.

2. QDII (Qualified Domestic Institutional Investor) refers to a domestic fund that has been approved by the China Securities Regulatory Commission to raise funds in China, and uses part or all of the raised funds to conduct overseas securities investment, management in the form of asset portfolios, management companies and securities companies and other institutions. At present, the subjects of QDII in China are limited to financial institutions such as commercial banks, securities companies, fund management companies, insurance institutions, trust companies, etc. The scope of investment is mainly in overseas secondary securities market, and is subject to certain restrictions.

3. QDLP (Qualified Domestic Limited Partnership) refers to raising funds from qualified domestic limited partners in China, setting up a QDLP fund, and then using the raised funds to invest overseas within the approved foreign exchange quota. QDLP funds can invest in securities investment funds (public funds, PE funds, overseas alternative assets including hedge funds, private equity funds, REITS, bad credit assets, etc.) in accordance with the corresponding system.

4. QDIE (Qualified Domestic Investor Enterprise) refers to an institutional arrangement whereby qualified investment management institutions, approved by relevant authorities in China, raise funds for Chinese domestic investors to invest in investment targets outside of China under the condition that CNY capital account is not yet freely convertible.

Shanghai:

In 2012, the “Implementation Measures on the Pilot Work of Qualified Domestic Limited Partners in this Municipality” Shanghai Finance Office [2012101] was issued.

In 2017, the “Implementation Measures on the Pilot Work of Qualified Domestic Limited Partners in Shanghai” Shanghai Finance Office No. 201712 was amended.

In 2020, The State Administration of Foreign Exchange approved an additional quota of USD 5 billion for the Shanghai Qualified Domestic Limited Partnership (QDLP) pilot program, bringing the total of USD 10 billion.

Tianjin:

In 2014, The “Trial Measures for the Pilot Program of Overseas Investment Funds in this Municipality” (Jin Fa Gai Cai Jin [2014] No. 748) was issued.

2018 saw a revision of the “Trial Measures for the Municipality to carry out the Pilot Work of Overseas Investment Funds.”

Shenzhen (QDIE): Qualified Domestic Investment Enterprise

2014 The “Interim Measures on the Pilot Program of Overseas Investment by Qualified Domestic Investment Enterprise” was formulated.

2020 Issued the “Administrative Measures for the Pilot Program for Overseas Investment by Qualified Domestic Investment Enterprise” (Draft for Comment).

In 2021, the State Administration of Foreign Exchange (SAFE) approved an increase in the Qualified Domestic Investment Enterprise (QDIE) pilot program of Shenzhen from $5 billion to $10 billion

Qingdao:

2015 Issued the “Notice on Printing and Distributing the Interim Measures of Qingdao Municipality for the Pilot Work of Qualified Domestic Limited Partners” Qingjinbanzi (2015) No. 9

In 2021, the State Administration of Foreign Exchange (SAFE) approved a US $3 billion pilot QDLP outbound investment in Qingdao

Beijing:

In 2019, the Interim Measures of Beijing Municipality on the Pilot Work of Overseas Investment by Qualified Domestic Limited Partners and the detailed rules for its implementation were formulated

In 2020, with the approval of the State Administration of Foreign Exchange (SAFE), Beijing increased its QDLP pilot quota to $10 billion U.S. dollars

Hainan:

In 2020, the Foreign Exchange Bureau of the State Administration of Foreign Exchange approved the pilot program for Qualified Domestic Limited Partner (QDLP) outbound investment in the Hainan Free Trade Port.

2021 Issued the “Interim Measures of Hainan Province for the Pilot Program of Overseas Investment by Qualified Domestic Limited Partners (QDLP).”

Chongqing:

In 2020, the State Administration of Foreign Exchange (SAFE) approved a pilot program for qualified domestic limited partners (QDLP) in Chongqing.

Guangdong:

In 2021, the State Administration of Foreign Exchange (SAFE) approved a US $5 billion trial for Qualified Domestic Limited Partner (QDLP) outbound investment in Guangdong province (excluding Shenzhen).

Jiangsu:

In 2021, the State Administration of Foreign Exchange (SAFE) approved a USD 5 billion pilot program for qualified domestic limited partner (QDLP) outbound investment in Jiangsu province.

QDLP/QDIE Fund Manager

Shanghai:

Name: Foreign investment overseas investment fund management enterprises

Organizational form: Company, partnership

Foreign capital (established with direct investment by overseas shareholders/established with investment by foreign invested enterprises / invested by overseas shareholders)

Registered capital: Not less than USD 2 million or equivalent currency

Form of investment: Currency

Payment Period: None

Requirements of Controlling Shareholders, actual controllers or their related entities:

The overseas actual controlling investor or the related entity of the controlling investor shall meet the following conditions:

(1) Manage the fund management business of investing in the overseas market with good investment performance.

(2) The relevant entity established overseas shall be approved by the regulatory authority of the country or region where it is located to engage in the investment management business and have a license that is issued by local regulatory authority (if applicable).

(3) It has a sound governance structure, a sound internal control system, and standardized business conduct. In the past three years, it has not been severely punished by the regulatory authorities of the country or region where it is located, and no major issues are under investigation by the judicial department and regulatory authorities.

Requirements for legal representatives or managing partners (appointed representative) or other management personnel.

The following conditions should also be met:

 (1) Have overseas market investment or related management experience.

 (2) Have more than two years (including two years) experience in senior management positions.

 (3) In the last 5 years, there are no records of major violations, no cases of economic disputes still being processed, and no records of major bad credit.

In the pilot area, senior management personnel are set up as permanent personnel:

There must be at least one QDLP fund manager established by a foreign company or natural person.

QDLP fund managers established by foreign-invested companies must have at least two managers, one of whom can concurrently serve as the legal representative or executive partner (appointed representative).

Hainan:

Name: Pilot fund management enterprises

Organizational form: Company, partnership

Domestic/foreign capital

It should be registered as a private equity fund manager with the China Securities Investment Fund Association, and have completed the filing of at least one private equity fund with the China Securities Investment Fund Association.

Registered capital: Not less than 5 million Yuan or equivalent currency

Form of investment: Currency

Payment period: Full payment within 2 years from the date of obtaining the pilot qualification.

Requirements for controlling shareholders, actual controllers or their related entities:

An overseas actual controlling investor or an associated entity of such a controlling investor shall meet the following conditions:

Financial enterprises that have been approved to engage in investment management business or asset management business by the local regulatory authorities and have a license that is issued by the local regulatory authorities, or fund management enterprises with good investment performance. The size of the managed fund is not less than 100 million Yuan (or equivalent foreign currency)

The applicant should have net assets of no less than CNY 10 million or equivalent foreign currency, the quality of the assets is good, and at least 3 years working experience in domestic and overseas asset management industry. have a standardized internal governance structure and a sound internal control system, it has not been severely punished by the local regulatory authorities in the recent 1 year, and no major matters are being investigated by judicial departments and regulatory authorities.

Requirements for legal representative or managing partners (appointed representatives) or other management personnel

At least 1 major investment manager with more than 5 years’ experience in overseas investment management and 2 with more than 3 years’ experience in overseas investment management and relevant professional qualifications.

Major investment management personnel in the recent five years are without violation records or ongoing economic dispute litigation cases.

Shenzhen (QDIE)

Name: Qualified Domestic Investment Enterprise

Organizational form: Company, partnership

Domestic/foreign capital

Registered capital:

Foreign capital: not less than USD 2 million or equivalent currency.

Domestic capital: Not less than CNY 10 million.

Form of investment: Currency

Payment Period: 20% or more shall be paid within 3 months from the date of issuance of the business license, and the balance shall be paid within 2 years.

Requirements of controlling shareholders, actual controllers or their related entities:

Foreign capital

 (1) Operating and managing overseas investment funds, operating continuously for more than 3 years, and having good investment performance. Have a sound governance structure and a sound internal control system, standard operating behaviors, have not been subject to major penalties by the country or region regulatory agency in the last two years, and have no major issues under investigation by judicial departments and regulatory agencies

2. It must be approved by the regulatory authority of the country or region where it is located to engage in the investment management business and have a license that is issued by the local regulatory authority.

3. At least 1 major investment manager with more than 5 years’ experience and 2 major investment managers with more than 3 years’ experience in overseas asset investment management and relevant professional qualifications

4. Other conditions as required by the principle of prudence.

Domestic capital

In addition to meet the above (1), (3), (4) conditions of [foreign capital], it shall belong to one of the following two types of enterprises:

1. Domestic financial enterprises (with financial licenses that is issued by China’s financial regulatory authorities)

 (2) Equity investment fund management companies that have been in continuous operation for more than 3 years and have managed funds not less than RMB 1 billion.

Requirements for legal representative or managing partner (appointed representative) or other management personnel: No requirements

Shenzhen（QDIE）Exposure draft

Name: Qualified Domestic Investment Enterprise

Organizational form: Company, partnership

Domestic/foreign capital

Whether it can be a continuing fund manager: Yes, but does not specify specific requirements

Registered capital: Not less than USD of 2 million or equivalent currency.

Form of investment: Currency

Payment period: 20% shall be paid within 3 months from the date of obtaining the pilot qualification or the date of establishment of the enterprise (whichever is later), and the rest shall be paid within 2 years.

Requirements of controlling shareholders, actual controllers or their related entities:

Foreign capital

1. Have operated and managed overseas investment funds, with a continuous operation period of more than 3 years and good investment performance.

2. Have a sound governance structure and a sound internal control system, standard business conduct, no major risk incidents, have not been punished by the country’s (regional) judicial bodies and related regulatory agencies in the past three years, and no major issues are being accepted by judicial agencies and related regulatory agencies Investigation.

3. The applicant shall hold the relevant management license that is issued by the financial supervision department of the country (region) where he/she is located, and the assets under management in the previous fiscal year shall not be less than the equivalent currency of USD 200 million before the application.

4. Other conditions required in accordance with the principle of prudence.

Domestic capital

It shall meet the conditions stipulated in Article 5 (1), (2) and (4) above [Foreign Capital], and shall also meet one of the following conditions:

1. Commercial banks, securities, insurance, trust, financial leasing, public offering fund management and other licensed financial institutions that are approved by the financial regulatory authorities of the State or first-level subsidiaries holding more than 50% of their shares.

2. An equity management institution with assets under management of not less than CNY 1 billion in the previous fiscal year prior to the application.

Requirements for legal representative or managing partner (appointed representative) or other management personnel:

At least two senior management personnel (including legal representative/executive partner (appointed representative), general manager, deputy general manager, head of compliance/risk control, finance chief) who have the following qualifications:

1. More than five years of experience in overseas asset investment management.

2. At least 2 years of senior management experience.

3. In the recent five years, he/she has no illegal records or ongoing economic dispute litigation (arbitration) cases, and with a good personal credit record.

4. Other conditions required in accordance with the principle of prudence.

Senior management personnel are determined by the pilot joint meeting in accordance with the principle of prudence as natural person investors of QDIE fund management enterprises, but the total capital contribution ratio of senior management personnel shall not exceed 20%.

Requirements of legal representative or managing partner (appointed representative) or other management personnel: No requirements

QDLP/QDIE funds

Shanghai:

Name: Overseas investment fund enterprises

Form of organization: partnership, contract

Capital scale (subscribed capital / initial raised capital, live registered capital): not less than RMB 100 million for partnership funds and not less than RMB 30 million or equivalent for contractual funds.

Investment requirements for QFII (Qualified Foreign Institutional Investors): The investment subscribed by a single qualified domestic limited partner in the partnership fund shall not be less than CNY 5 million.

Do domestic qualified investors require penetrating verification? No regulations.

Investment scope: invest directly in overseas markets or invest in overseas markets through overseas funds (PE funds, public offering funds, and hedge funds are acceptable).

Fund Manager / executive partner of QDLP Fund: for a QDLP fund established in partnership, its executive partner shall be an enterprise within the territory of China, a QDLP fund management enterprise, or an enterprise recognized in writing by the relevant national regulatory authorities.

Administrator: A qualified administrator in the territory shall be entrusted.

Hainan:

Name: Pilot funds

Organizational form: company, partnership, contract system and other forms

Capital scale (amount of subscribed capital / initial raised capital, live registered capital): no less than RMB 30 million or equivalent currency.

Investment requirements of QFII (Qualified Foreign Institutional Investors):

Having the corresponding risk identification ability and risk bearing capacity, the amount of investment in a single pilot fund is not less than CNY 1 million or equivalent foreign currency, and:

(1) A legal entity whose net assets are not less than CNY 10 million

2) Individuals whose financial assets are not less than 3 million Yuan or whose average annual income in recent three years is not less than 500,000 Yuan. The financial assets mentioned in the preceding paragraph include bank deposits, stocks, bonds, fund shares, asset management plans, bank financial products, trust plans, insurance products, futures rights and interests, etc.

The following investors are deemed to be eligible domestic limited partners:

1. Pension funds such as social security funds, enterprise annuity funds, and social public welfare funds such as charitable funds.

2. Asset management products registered according to law.

3. Fund managers and their employees who invest in the funds they manage

4. Other investors as specified by the China Securities Regulatory Commission.

Domestic qualified investors require penetrating verification: In the form of partnerships, contracts, etc., penetrating verification should be required. However, compliance with the above items that can be regarded as QDLP item (1), (2) and (4) will no longer be inspection.

Investment scope:

1. Equity and bonds of overseas non-listed enterprises

2. Stocks and bonds that are not publicly issued or traded by overseas listed enterprises

3. Overseas securities market (including financial instruments traded in overseas securities market.)

4. Overseas equity investment funds and securities investment funds

5. Overseas bulk commodities, financial derivatives

6. Other fields that are approved by the relevant departments of the State.

Fund managers/executive partners of QDLP funds: no regulations

Administrator: The QDLP Fund Manager may manage or entrust a domestic enterprise that meets the requirements stipulated in this Article as the administrator of administrative affairs.

Shenzhen （QDIE）Funds

Name: Overseas investment entity

Organizational form: company, partnership, contractual fund, special account.

Capital scale (amount of subscribed capital / initial raised capital, live registered capital): no less than RMB 30 million or equivalent foreign currency.

Investment requirements for QFII (Qualified Foreign Institutional Investors): It shall comply with the relevant regulations of the relevant organizational forms, and the subscribe contribution of a single qualified domestic investor shall be no less than CNY 2 million (or equivalent foreign currency).

Investment scope: overseas market, no direct regulation.

Fund Manager/Managing Partner of the QDLP Fund: Shall be the QDIE Fund Manager

Administrator: A qualified administrator shall be entrusted.

Shenzhen (QDIE) funds (Exposure draft)

Name: Overseas investors

Form of organization: company, partnership, contract

Capital scale (amount of subscribed capital / initial raised capital, live registered capital): no less than RMB 30 million or equivalent foreign currency.

Investment requirements for QFII: It shall meet the requirements of QFIs as stipulated in the Interim Measures for the Supervision and Management of Private Investment Funds, the Self-discipline Rules of the Asset Management Association of China (hereinafter referred to as “AMAC “), and the Guiding Opinions on Regulating the Asset Management Business for Financial Institutions, and the amount of a single investment shall not be less than the equivalent currency of CNY 3 million.

Requirements for QFII (Qualified Foreign Institutional Investors) whether penetration verification is required: No regulations

Investment scope: Stocks and bonds of overseas non-listed enterprises, stocks and bonds of overseas listed enterprises that are not publicly offered or traded, overseas private equity investment funds and private equity investment funds. Negative List: It is prohibited to invest in industries that are restricted or prohibited for overseas investment. It is forbidden to assist domestic individuals to buy houses or transfer assets abroad.

The fund manager/executive partner of the QDLP fund: In the case of a partnership QDIE fund, the general partner and the fund manager are not the same person, a pilot joint meeting will conduct a review based on the principle of prudence.

Administrator: a private fund outsourcing service organization registered by the fund industry association can be entrusted.

1. The provincial financial supervision department shall organize the departments of foreign exchange administration, provincial market supervision, securities supervision, development and reform, and commerce to conduct joint examination and verification

2. For the first batch of pilot fund management enterprises and the application of pilot funds, the provincial financial supervision department shall submit the list of the first batch of pilot enterprises and a suggestion for the first pilot quota to the provincial government for approval before issuing written opinions on approving the first batch of pilot fund management enterprises and granting the pilot quota to the applicants.

(1) Register with the provincial market supervision department

(2) Go through the formalities of registration and filing with AMAC

(3) Submit the business license for the pilot fund management enterprise and the pilot fund, the articles of association/partnership agreement, the entrustment management agreement, the custody agreement, and the agency agreement signed between the domestic custodian and the overseas asset custodian (if any) to the provincial financial supervision department within 30 natural days after registration and establishment, and copy to the foreign exchange administration department and the securities supervision department

(4) The certificate of actual payment of registered capital shall be provided within 30 natural days after the capital is fully paid.

(5) After the pilot fund management enterprise obtains the pilot qualification and the foreign investment quota, it shall go through the foreign exchange registration with the foreign exchange administration department with the written opinions of the pilot approved.