Shanghai Pilot Program

Shanghai's regulatory authorities officially launched the foreign invested private equity investment enterprise pilot program (the Shanghai Pilot Program) with the issuance of the Implementing Measures on the Pilot Program of Foreign Invested Private Equity Investment Enterprises on 11 January 2011 (for more information, see Legal Update: New Measures to Facilitate Foreign Investment in Funds and Fund Managers Registered in Shanghai).

The Shanghai Pilot Programme permits qualified foreign invested private equity investment fund and fund management company pilot enterprises (pilot enterprises) to convert their foreign currency capital into RMB as capital contributions to RMB funds.

The Shanghai Financial Services Office (SHFSO), together with the Shanghai Branch of the State Administration of Foreign Exchange (SAFE) and Shanghai Administration of Industry and Commerce, have clarified certain issues with respect to the application procedure and provided a general update about the Shanghai Pilot Program.

Since launching the Shanghai Pilot Program in January 2011, the Shanghai authorities have received a number of pilot enterprise applications. Carlyle, Blackstone and DT Capital have been approved as pilot enterprises, with Carlyle and Blackstone each obtaining a foreign exchange quota of US$100 million.

The Shanghai authorities are reviewing a number of additional applications and they plan to expand and diversify the composition of pilot enterprises beyond large buy-out funds to include funds with an investment focus on technology, new tech industries, and entrepreneurial-based small and medium-sized companies.

Officials from SHFSO have indicated that the review process focuses on factors such as:

  1. whether the fund has identified investors and obtained firm commitments from such investors;
  2. whether there is a management team in place with sufficient, relevant and successful PRC investment experience;
  3. whether the fund has PRC investors, in particular, government guidance funds, SOEs and other non-state-owned enterprises (funds with such investors will be viewed upon favourably);
  4. whether such enterprise has established an organisation and governance structure, investment plans, and capital contribution, distribution and incentive allocation mechanism.

Officials from SAFE have clarified that, contrary to earlier speculation by some, the Shanghai Pilot Program is not subject to a US$3 billion, in aggregate, foreign exchange quota. SHFSO has also confirmed that there is no mandatory cap on the proportion of foreign capital in a pilot enterprise (previously rumoured to be 50% of capital commitments/contributions), but preference will be given to funds with meaningful domestic capital participation.

Beijing Pilot Program

Beijing has a separate QFLP Pilot Program (the Beijing Pilot Program), the details of which are described in the Interim Measures on the Pilot Scheme to Develop Equity Investment Funds and Equity Investment Management Enterprises to Better Utilize Foreign Investments dated 28 February 2011.

In some respects, the Beijing Pilot Program is similar to the Shanghai Pilot Program.

However, the Beijing Pilot Program has several notable differences from the Shanghai Pilot Program:

The minimum fund size is RMB500 million (whereas only US$15 million is needed for a fund under the Shanghai Pilot Program).

Private equity funds applying under the Beijing Pilot Program must limit their investments to industry sectors which are prioritised as being strategically important for the development of the PRC economy:

  • environmental protection/energy conservation,
  • next-generation information technology,
  • biotechnology,
  • high-end equipment manufacturing,
  • alternative energy production,
  • new materials, and
  • alternative energy vehicles.

In contrast, the Shanghai Pilot Program does not contain any such limitations.
The Beijing Pilot Program encourages private equity fund and fund management company pilot enterprises to be set up in the Zhongguancun National Innovation Demonstration Zone, (also known as the Zhongguancun Science Park or the Z Park for short) which comprises an area of 232 square kilometres to the north-west of Beijing.

Generally, commitments from foreign investors in a private equity fund pilot enterprise cannot exceed 50% of the total size of the fund.

The Beijing Pilot Program permits a foreign-invested fund management company pilot enterprise to convert foreign currency into RMB, up to 5% of the fund's size, by way of a capital contribution. However, unlike the Shanghai Pilot Program, the Beijing Pilot Program does not provide "national status" to those funds whose only foreign commitment comes from such fund management companies.

The Beijing Municipal Bureau of Finance is charged with the responsibility of administering the Beijing Pilot Program.

The launch of the Beijing Pilot Program offers additional choice for those foreign fund sponsors interested in setting up RMB funds and fund management companies in Beijing, and is expected to further stimulate the growth of RMB funds.

Editor's note: The original version of this Legal Update only addressed issues relating to the Shanghai Pilot Program. Subsequent to publication of the original version of this Legal Update, copies of "Interim Measures on the Pilot Scheme to Develop Equity Investment Funds and Equity Investment Management Enterprises to Better Utilize Foreign Investments" dated 28 February 2011 were made available to market practitioners. The original version of this Legal Update has been revised to include information about the Beijing Pilot Program.

For inquiries related to this Legal Update, please contact:

Phill Smith (

Yong Ren (

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