Financial Regulatory Forum

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.

China-U.S. IPOs: China’s forex crackdown locks up currency (Westlaw Business)

Chinese 100 yuan banknote is seen in this picture illustration taken in Shanghai January 19, 2011. REUTERS/Aly SongBy Helen H. Chan

HONG KONG, Jan. 21 (Westlaw Business) – Excessive liquidity is becoming a hot potato for the State Administration of Foreign Exchange (SAFE), China’s forex regulator. Recently, SAFE announced that it would continue to crack down on “hot money” inflows through vigilant monitoring of cross-border transactions. In particular, China’s currency watchdog will examine whether foreign exchange destined for the PRC are being used in compliance with Chinese laws.

In its ongoing battle against inflation, the Chinese government has been scrutinizing compliance with existing forex regulations, many of which apply to the daily operations of overseas listed Chinese companies. In response to the clampdown, Sino-U.S. companies have highlighted a number of foreign exchange transfer risks in recent disclosure filings. (more…)