The 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.
Recently, 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 Pilot
Since launching the 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:
whether the fund has identified investors and obtained firm
commitments from such investors;
whether there is a management team in place with sufficient,
relevant and successful PRC investment experience;
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);
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 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.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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