Foreign private equity braces for rough ride to China -ANALYSIS
Helen H. Chan
HONG KONG, May 20 (Business Law Currents) Foreign-invested private equity firms are rallying in Shanghai, eagerly awaiting the results of a second round of applications for the Qualified Foreign Limited Partners (QFLP) scheme. In recent weeks, large international buyout firms such as Blackstone and the Carlyle Group have rejoiced over being some of the first to be awarded a QFLP license.
Although the QFLP seems to have gone one step further in liberalizing private equity deals between foreign investors and domestic targets, perks of the scheme come with a tangle of very sticky red tape. Recently, financial authorities in Shanghai have published several guidelines to facilitate the second round of approvals for QFLP licenses. Aiming to aid domestic entrepreneurial efforts, the newly-issued requirements appear to favor applicants with connections to government-backed funds and homegrown Chinese enterprises.
Established in early 2011, the QFLP permits licensed non-Chinese private equity firms to convert foreign currency into renminbi for onshore investment in China. Once approved, a firm may convert foreign currency, up to a quota permitted by its license, without approval by the State Administration of Foreign Exchange (SAFE).
Previously, SAFE approval was required for every single foreign exchange transaction. Under the QFLP scheme, qualified foreign private equity firms can launch RMB-denominated funds using overseas capital. For more information, please see PRC Private Equity: Destination Shanghai?
Recently, the Shanghai branch of SAFE and the Shanghai Financial Services Offices have issued several guidelines which will be used to review applications for a QFLP license. In addition to considering large buyout firms, authorities have indicated a desire to look at technology-focused funds and firms that support small to medium Chinese enterprises.
Aside from examining whether applicants have concrete investment and capital contribution plans, applicants will be vetted on whether their management team has relevant PRC experience and a successful track record of investing in China.
COLUMN – China’s export dominance must force US rethink: John Kemp
– John Kemp is a Reuters columnist. The views expressed are his own –
By John Kemp
LONDON, March 23 (Reuters) – Managing the rise of China’s vast economy and healing the U.S. trade deficit will require a new willingness and capacity to boost U.S. technology exports at affordable prices. More importantly it requires a new language from policymakers and a new mindset.
In a recent survey of American businesses, the proportion who felt unwelcome operating in China had risen sharply, amid tense stand offs involving Rio Tinto and Google. But with U.S. legislators in full flag-waving cry about China as a currency manipulator, is it really surprising China is looking to become more self-reliant?
At the heart of the trade problem is the difficulty the United States (and other western economies) are experiencing in adjusting to China’s rise to superpower status in the 21st century. It is causing the same problems the rise of Germany, Japan and the United States itself caused for Britain in the 19th and early 20th centuries.
Until now most analysts have focused on destabilising military aspects of that competition and the need to prevent a re-run. But almost equally important were tensions in the industrial sphere.
China’s rise is also reshaping the world manufacturing base. Inevitably, it will leave some industries in North America washed up and uncompetitive, the equivalent of Britain’s rusting mill towns and shipyards. Rather than drawing up the dikes and hoping history will go away, the challenge is to develop export-focused industries capable of selling competitively into China’s vast internal market.
China set to cap funds’ trading in index futures
SHANGHAI, March 16 (Reuters) – China’s securities regulator is set to clear only stocks-related mutual funds to trade in the country’s first stock index futures, ordering them to trade for hedging rather than speculative purposes, according to draft rules published on Tuesday. (more…)
Taiwan formally OKs China financial investment rules
TAIPEI, March 16 (Reuters) – Taiwan’s top financial regulator formally announced on Tuesday guidelines on investments between local and Chinese banks and financial institutions after the government gave its approval. (more…)
Days of “special” yuan policy numbered – China central banker
By Zhou Xin and Benjamin Kang Lim
BEIJING, March 6 (Reuters) – China flagged on Saturday it will let the yuan resume its rise at some point as it unwinds the super-loose policies it has been pursuing to prop up the world’s third-largest economy.
China is under intense pressure from the United States and Europe to abandon the exchange rate peg it instituted of around 6.83 yuan per dollar since mid-2008 to preserve the competitiveness of its exporters during the international financial crisis.
Speaking during the annual session of China’s parliament, central bank governor Zhou Xiaochuan said Beijing would eventually have to drop this “special” yuan policy, one of a range of emergency measures taken to cushion the blow to growth.
“Practice has shown that these policies have been positive, contributing to the recovery of both our country’s economy and the global economy,” Zhou told a news conference.
But he added: “The problem of how to exit from these policies arises sooner or later.”
China would have to be careful in withdrawing the extraordinary stimulus it has provided since late 2008.
China launches stock index futures trading accounts
SHANGHAI, Feb 22 (Reuters) – Chinese investors will be able to begin applying on Monday to open accounts for stock index futures trading, the China Financial Futures Exchange said, in a key step toward the long-awaited launch of index futures trade. (more…)
China indicts Rio staff for bribery, commercial secrets
By Ben Blanchard and Chris Buckley
BEIJING, Feb 10 (Reuters) – China has indicted four employees of Anglo-Australian mining giant Rio Tinto on charges of bribery and stealing business secrets, setting the stage for a trial in the case that has jangled investor nerves.
The four who are set to stand trial in Shanghai include Australian citizen Stern Hu, state news agency Xinhua said on Wednesday.
If found guilty, they could face up to seven years in jail on the commercial secrets charge, and up to 20 years on the bribery charge, said Zhang Peihong, a lawyer for one of the accused Chinese nationals.
The indictments will open another chapter in the case that has tested ties with Australia and unnerved mining companies and foreign investors in China, worried about pitfalls in the world’s third biggest economy, where state power is never far from the negotiating table.
Last month, the world’s top Internet search engine Google became embroiled in a dispute with China, criticising Beijing for censorship and saying it had been the victim of serious hacking from within the country. It has threatened to pull back from China.
In the Rio case, the Shanghai prosecutor said the four badly hurt Chinese steelmakers and were seeking to benefit “others”, who it did not name.
China banks call back loans to satisfy regulators
BEIJING, Feb 3 (Reuters) – Two of China’s biggest banks aggressively called back loans in the second half of January to fall into line with the government’s directive to slow lending, local media reported on Wednesday. (more…)
EXCLUSIVE – China tells banks to ensure loans are used properly
SHANGHAI, Feb 1 (Reuters) – China’s banking regulator has ordered lenders to conduct checks on whether any of their loans have illegally gone into the stock or property markets, a banking source told Reuters on Monday, the latest step in a clampdown on excessive lending and rising asset prices.
Credit found used for improper purposes must be withdrawn within a certain period of time, said the source, who had seen the relevant notice from the regulator. He did not elaborate on the timeframe.
The order from the China Banking Regulatory Commission (CBRC) marks further efforts by Beijing to rein in rampant lending and ensure that credit is being used to generate genuine economic activity and not simply to fuel speculation in stocks and property.
“The CBRC has recently found that some banks have loosened management of their lending practices, some industrial companies have illegally used bank credit to invest in stocks and property, while some individuals have used consumer loans to trade stocks,” said the source.
It is not unusual for the CBRC to issue such orders, though it is unclear how it will actually implement them.
For instance, it leaned on banks to cut back on short-term bill issuance last year after a spike in such credit at the start of the year, and has said in public statements over the past year that loans must be used for real economic purposes such as investment or purchasing property or goods.
Still, the order follows a series of steps over the past weeks to curb credit growth, demonstrating authorities’ seriousness about preventing a flood of credit that could fuel asset price bubbles and rising inflation expectations.
Taiwan to allow its banks to invest in China lenders
TAIPEI, Jan 27 (Reuters) – Taiwan has given preliminary approval for local banks to invest in Chinese lenders, but Chinese banks will not be allowed to buy stakes in Taiwanese counterparts, a government official said on Wednesday.
In revisions to a cross-strait banking draft as part of a historic financial services agreement signed with China in November, Chinese banks would only be allowed to set up representative offices and branches in Taiwan, the official said, requesting anonymity as he was not authorised to speak to media.
The draft, if finalised, would provide growth opportunities for Taiwan banks, whose return on equity has been among the lowest in Asia for years partly due to stiff competition.
“It opens up a significant new growth area for Taiwan banks,” said an analyst at a U.S.-based securities house, adding that he expected the draft to get final approval from Taiwan Premier Wu Den-yih as soon as July.
Trade ties between Taiwan and China have improved since China-friendly President Ma Yin-jeou took office in 2008, but distrust still lingers between the former political rivals.
The Financial Supervisory Commission, the island’s top financial regulator, said earlier this month that qualified Chinese domestic institutional investors will be allowed to buy local stocks worth up to $500 million, only half of what had been expected by investors.
However, cross-strait banking deals may be slowed due to political concerns, analysts said.
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