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Legal Update

NDRC Clarifies Foreign Investor Status of Foreign Invested RMB Funds

16 May 2012
Mayer Brown JSM Legal Update


China's National Development and Reform Commission (the "NDRC") has issued a Letter on Relevant Issues Relating to Foreign-Invested Equity Investment Enterprises (the "Letter") in response to the Shanghai Development and Reform Commission's request to clarify the 'national status' of an RMB fund in the form of a limited partnership managed by a qualified foreign invested management company as the general partner (whether or not any of the capital committed/contributed to the fund is from that general partner or another non-PRC investor, a "QFLP Fund").

The Letter states that QFLP Funds do not enjoy 'national' status and their investments are therefore subject to the Catalogue of Industries for Guiding Foreign Investments (the "Foreign Investment Catalogue").

The Letter clarifies the status of QFLP Funds and serves to encourage investment in strategic new industries favoured by the central government.


Shanghai is one of several cities whose QFLP pilot program provides if a foreign invested management company invests up to 5% of a fund's total commitments as its capital contribution that will not change its status as a domestic RMB fund if all of the limited partners are PRC investors.

However, that position appeared to be inconsistent with the views of the Ministry of Commerce ("MOFCOM"). This uncertainty has discouraged many QFLP Funds from making investments although QFLP Funds, with foreign fund management expertise and Chinese domestic capital, targeting investments in sectors such as the internet, e-commerce, financial services and other growth sectors, have become increasingly popular to set up.


By copying the Letter to various provincial government agencies and NDRC's local offices, NDRC appears to want to implement a uniform approach to the application of the Foreign Investment Catalogue.

The Letter does not address any other issues related to QFLP Funds. For example, it remains unclear what approvals apply to investments even though foreign exchange approvals are not required.

There is speculation among market participants that for investments in encouraged industries, QFLP Funds may not need approval from MOFCOM or its local branches. However, QFLP Funds should refrain from investing in prohibited or restricted industries without appropriate approvals.

As the Letter has just been issued, further clarifications with respect to the procedures may be expected from other government agencies. A coordinated set of procedures may well develop over time. Until then, such approval procedures may vary with different local practices.

For inquiries related to this Legal Update, please contact Phill Smith, Yong Ren, Charles Wang, or your usual contacts with our firm.

Learn more about our PRC offices and Financial Services Regulatory & Enforcement, Private EquityPrivate Investment Funds practices.

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