Annual Review and Outlook QFLP and QDLP as Cross-border Investment Funds (2022-2023)
2023.01.06
Annual Review and Outlook QFLP and QDLP as Cross-border Investment Funds (2022-2023)
QFLP (i.e., Qualified Foreign Limited Partnership) is a pilot scheme that serves as a channel for foreign investors to invest in China's private equity market. Through QFLP pilot scheme, foreign investors are able to participate in the establishment of foreign-invested QFLP fund managers or foreign-invested QFLP products (typically, QFLP funds). With QFLP license and quota, the QFLP products can flexibly convert the foreign investors' FX capital into RMB to participate in private equity investment in China.
QDLP (i.e., Qualified Domestic Limited Partner) and QDIE (i.e., Qualified Domestic Investment Enterprise) are pilot schemes that enables an institution with QDLP/QDIE license and quota (i.e., QDLP/QDIE fund manager) to launch QDLP/QDIE funds by raising capital from qualified investors in China and invest in overseas financial markets with such capital after converting into foreign currency within the FX quota approved.
The year 2021 marks the 10th anniversary of QFLP pilot scheme.
QDLP pilot scheme has also been implemented for a decade by 2022.
QFLP and QDLP, once quite mysterious to the market, has gradually attracted more and more attention from the industry with the gradual increase of pilot regions. In addition to such global asset managers as Amundi, BlackRock and Fidelity, which continue to favor such schemes, many domestic professional investors have also started to tap into the market.
However, QFLP and QDLP are still small-scale pilot schemes so far. We can conclude that from various perspectives QFLP and QDLP businesses need to be done by constantly learning from experience and lessons of precedents and peers. For example:
(1) It is a local pilot business. Therefore, the regulatory rules vary from place to place, and the interpretation and implementation may have some differences with the written rules.
(2) If a manager or a product constitutes a private fund manager or a private fund under the laws of China, it also needs to comply with applicable regulatory rules.
(3) Issues with respect to foreign exchange and cross-border RMB are the core issues of such business.
(4) There are both differences and overlaps between QFLP/QDLP and FDI/ODI.
(5) As a cutting-edge pilot scheme, there are many issues that need to be considered and handled in practice.
What are the developments of QFLP and QDLP in 2022? This report will introduce relevant legislative progress, policy adjustments, regulatory developments and hot events, based on the author's rich project experience.
It is important to note that this report is not intended to be a comparison of the specific provisions in different pilot regions. On the one hand, most of these rules are publicly available; on the other hand, actual practices vary from place to place, and it is impossible for a high-level pilot rule to include all detailed aspects.
Regarding how to select QFLP and QDLP in different pilot regions, in our experience, while eligibility requirements, preferential policies and FX quotas are certainly important elements for considerations, it is also quite important to consider it in multi- dimensional perspectives (e.g., service level, business proficiency, supportive policies and convenience of FX remittance in pilot regions).
As the ancient sage, Qu Yuan, said in his article, everything has pros and cons, and no one and nothing is omniscient and omnipotent. What is most important is that what suits yourself is the best, and we should avoid simply following others.
At last, we appreciate the support to this report by CITICS Investment Services Company Limited, Beijing Private Equity Association, Shenzhen Venture Capital Association and etc.
Please download the full report via the below link.
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