Shanghai Launches Pilot Program Allowing Foreign Private Equity Investment

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Jan. 13 – In a statement published on January 12, the Shanghai government announced the launch of a pilot scheme titled the Qualified Foreign Limited Partner program which will allow foreign private equity firms to directly invest in the nation.

According to a joint statement issued by the Shanghai Finance Office, the Shanghai Ministry of Commerce, and the Shanghai Administration of Industry and Commerce, the scheme aims to “attract quality, long-term overseas capital, boost domestic investment, and would promote the development of a local private equity market.”

“It would also help accelerate China’s economic restructuring; and strengthen Shanghai’s role as an international financial center,” according to the statement.

Under the trial program, certain types of foreign investors can apply to convert foreign currency into RMB, which they can directly invest in private-equity funds based in Shanghai. This will allow investors to bypass China’s restrictions on bringing funds into the country for financial investments. Among the investors allowed to take advantage of the program, the statement lists overseas sovereign-wealth funds, pension funds, insurance companies and endowment funds.

China’s foreign exchange regulator has granted Shanghai a US$3 billion initial quota for the project. Carlyle Group, Blackstone and First Eastern Investment Group will be given a combined $300 million quota initially, while 15 other private equity funds will get $1.5 billion.

It is not yet clear how much investors will be allowed to bring in, or under what terms investors would be allowed to convert profit back into other currencies. All investments will be subject to approval by China’s State Administration of Foreign Exchange.