A Deep Dive into Hainan’s QDLP Policy

On October 10, 2020, and April 12, 2021, Hainan province released the Qualified Foreign Limited Partner (QFLP) and Qualified Domestic Limited Partner (QDLP) pilot documents, opening up cross-border investments in a span of just 7 months. In this piece, we’ll take a close look at Hainan’s QDLP policy.
FOF WeeklyJun 07,2021,14:52

On October 10, 2020, and April 12, 2021, Hainan province released the Qualified Foreign Limited Partner (QFLP) and Qualified Domestic Limited Partner (QDLP) pilot documents, opening up cross-border investments in a span of just 7 months. In this piece, we’ll take a close look at Hainan’s QDLP policy.

As context, Shanghai (2012), Tianjin (2014), Shenzhen (2014), Qingdao (2015), Beijing (2020), and Hainan (2021) are now all pilot fields of QDLP policy. Numerous global asset managers have established QDLP funds in China in the 9-years of development. Take Shanghai as an example: as of year-end 2020, 48 global asset managers (including Black Rock, Man Group, UBS, Aberdeen Standard, Oaktree Capital, Allianz, Manulife, Prudential, Neuberger Berman, Morgan Stanley and Value Partner) have set up their QDLP funds in Shanghai. But Hainan has the most accommodative provisions nationwide.

Relevant Entities

Hainan’s QDLP policy applies to its QDLP funds and QDLP fund managers.

- Hainan QDLP fund managers: companies jointly recognized and approved by relevant authorities, registered and actually operating in Hainan, whose main business is to establish Hainan QDLP funds and be entrusted to manage these funds’ overseas investment. These managers can be domestic or foreign funded.

- Hainan QDLP funds: funds established in Hainan by Hainan QDLP fund managers according to law, subscribed by qualified domestic limited partners and investing overseas in accordance with relevant provisions.

To establish Hainan QDLP funds, you can either set up a new Hainan QDLP fund manager or be an existing fund manager registered in Hainan who then only needs to apply for QDLP qualification. The existing fund managers can be private securities, private equity or venture capital fund managers.

The Asset Management Association of China (AMAC) issued The Answer to Questions about Private Fund Registration and Filing (10) on June 30, 2016, allowing qualified wholly foreign-owned enterprises (WFOE) to register as private fund managers (PFM). Since then, many global asset managers have established wholly foreign-owned private equity investment fund managers (WFOE PFM) in China, and they are now actively applying for QDLP qualification and quota.

Application Requirements

Hainan, Shanghai and Shenzhen have subtle differences in their QDLP policies. We’ll discuss this in two parts: the requirements for QDLP fund managers and those for QDLP funds.

1. QDLP fund managers:   

As shown above, compared with the QDLP/QDIE system in Shanghai and Shenzhen, Hainan’s QDLP policy further lowered the threshold of minimum investment and time of contribution. But it paid more attention to the substantive requirements for QDLP fund management enterprises in internal control management and the qualifications of related entities.

2. QDLP funds   

We can see here that Hainan’s policy has more relaxed requirements for establishing QDLP funds. Also, in terms of the standards of qualified domestic investors, Hainan has obviously referred to the practice and experience of other pilot cities. Moreover, Hainan QDLP policy allows Hainan QDLP funds to manage themselves, improving the flexibility in daily operation.

To look at Hainan’s QDLP policy only, you can also check the local government’s website.

Investment Scope

Hainan’s QDLP policy has combined the advantages of other pilot cities, allowing Hainan QDLP funds to conduct overseas direct investment or invest in overseas financial products, including:

  • Equity and bonds of overseas non-listed enterprises
  • Stocks and bonds that are not publicly issued or traded by overseas listed enterprises
  • Overseas securities markets (including financial instruments traded in overseas securities markets)
  • Overseas equity investment funds and securities investment funds
  • Overseas bulk commodities, financial derivatives
  • Other fields that are approved by the relevant departments of the State.

The Future Outlook

In the second half of 2020, the State Administration of Foreign Exchange (SAFE) further expanded the foreign exchange quota under the Shanghai QDLP system and Shenzhen QDIE system – both to US $10 billion, following the previous increase to US $5 billion in April 2018.

In the first half of 2021, the SAFE approved another batch of QDLP pilot areas: Guangdong Province, Jiangsu Province, Chongqing city and Qingdao city, allocating quota of US $5billion each for the first three, and US $3 billion to Qingdao.

Shanghai, Shenzhen and Beijing – being geographically favored areas – had local QDLP/QDIE policies way before Hainan. But Hainan, the newcomer, is expected to become a popular QDLP destination given its unique financial innovation and preferential fiscal and taxation policies on top of the Hainan free trade port reform and innovation. More and more Chinese and international asset management institutions are attracted to settle in, invest in and spur development in Hainan. Hainan wishes to formulate more transparent preferential policies for private equity funds, actively set up government-guided funds and industrial investment funds, and constantly optimize its business environment.

By Wang Yong and Tangxue from Jingtian & Gongcheng

About Jingtian & Gongcheng

Founded in the early 1990s, Jingtian & Gongcheng is one of the first private and independent partnership law firms in China. Since its establishment almost three decades ago, and through the dedicated efforts and innovative initiatives launched by its founding partners, Jingtian & Gongcheng has developed a dynamic culture where its emerging talent are continually inspired, challenged, and provided with ample opportunity for growth. We are by now widely recognized as one of the top full-service business law firms in China.

Topics:private equity, venture capital, policy, fofweekly, China