On March 9, two Qualified Foreign Limited Partnership (QFLP) funds completed their filing with the Asset Management Association of China (AMAC). Managed respectively by ZhenFund and MSA Capital and registered in Sanya central business district (CBD), the funds represent early movers in an exciting new business environment and policy system developing in Hainan province and broader China.
Encouraging Cross-Border Investment
Since Hainan Free Trade Port released the Interim Measures On QFLP Domestic Equity Investment, these are the first market-oriented QFLP funds to file, blazing a trail for the Port to support entrepreneurship and innovation. Setting up the two funds is also a major embodiment of the Port's policy of facilitating cross-border investment and financing. To accelerate their establishment, the Sanya CBD Administration reportedly provided professional and efficient services throughout the process. Also, a team of lawyers from Jingtian & Gongcheng led by Wang Yong provided legal services.
China launched its first QFLP pilot in Shanghai back in 2010. Later, it expanded the pilot areas to Beijing, Tianjin, Shenzhen, Qingdao, Chongqing, Guizhou, Fujian Pingtan, Zhuhai, Guangzhou, Suzhou and Xiamen. On top of these pilot programs, the Hainan Provincial Local Financial Supervision Administration and other relevant departments have designed a looser, more convenient and more market-friendly pilot policy to maximize the incentives offered by Hainan Free Trade Port and accelerate foreign capital taking root in Hainan.
Creating Competitive Policy
On October 26, 2020, the Hainan Provincial Local Financial Supervision Administration, the Market Supervision Administration, the People's Bank of China Haikou Central Sub-branch, and the Hainan Office of China Securities Regulatory Commission jointly issued the Interim Measures.
According to Xie Yuezheng, assistant to the director of Sanya CBD Administration, the Hainan QFLP policy is competitive, with five highlights:
1) Simple and efficient registration procedure;
2) No minimum entry threshold;
3) No differential treatment for domestic or foreign capital;
4) Negative list management for investment;
5) And the most attractive policies.
As a result, more QFLP funds are on the way to taking root in Sanya CBD.
Smoothing the Way for Overseas Capital
As an important part of Hainan's financial reform and innovation, the Interim Measures have clarified the establishment procedures and business scope of foreign-backed equity investment firms. But also, they have put forward specific supporting policies and risk prevention and control measures. The zero threshold, simple and efficient registration procedure of "joint examination-free" and multiple supporting preferential policies have laid a solid institutional foundation for attracting overseas capital to invest in the Hainan PE / VC market.
Hainan’s QFLP system regards both QFLP funds and the managers as QFLP enterprises. It also treats domestic and foreign capital equally, making the same administrative requirements and allowing "domestic managers managing foreign capital" and vice versa. Hainan QFLP fund managers can establish or manage PE / VC funds within and outside Hainan.
Qualified Hainan QFLP enterprises also enjoy a tax reduction. So do their executives and employees, who are also eligible for talent rewards including Hukou household registration, car/property purchase, spousal employment, child enrollment in school, medical and housing security, etc. These have all made Hainan more attractive as a QFLP destination.
A Wave of New Funds Touch Down
As early as September 2020, BOCOM (Bank of Communications Co., Ltd.) introduced the Hainan BOCOM International Technology Innovation Shengxing Equity Investment Partnership (limited partnership) to Haikou Jiangdong New Area with a fund scale of about US $100 million. It mainly focuses on the new generation of information technology, fintech and high-end equipment, supporting the development of relevant Chinese high-tech enterprises. It is the first QFLP fund in the Hainan Free Trade Port.
In December 2020, the QFLP fund of Hainan Xituo Jiaoying Equity Investment Partnership (limited partnership) completed registration and obtained a business license, marking it the first one with underwriting of a letter of recommendation from an industrial park in Hainan.
Early in 2021, the first foreign PE fund manager was registered in Longhua District of Haikou City. The company, Yong He Wan Xin Private Equity Management (Hainan) Co., Ltd., has a registered capital of US$5 million and is owned by United Gold Fund Co., Ltd. (Cambodia). It is the first financial company wholly owned by a Cambodian enterprise registered in Hainan. Receiving permit of establishment on January 25, the company successfully obtained its business license only one day later.
Hainan Free Trade Port has become a fertile land for having the most attractive QFLP policy, turbocharging the Hainan QFLP pilot. It’s reported that many financial institutions and top quartile funds in and outside China have gone to Hainan to seek “a piece of the pie”, and many investment managers are attempting to open up a Hainan office.
With the policy system and business environment growing increasingly accommodative, we will see Hainan cross-border funds and global asset management companies flock into Hainan Free Trade Port to take advantage of the situation.