Shanghai opens door for foreign private equity funds

SHANGHAI: Shanghai will launch a pilot programme this month to allow select foreign private equity firms to invest in the country, in the latest sign that Beijing is gradually loosening its grip on the yuan.

The Chinese yuan is not fully convertible and currently China's stringent currency controls do not allow overseas private equity funds to convert foreign capital into yuan as part of a partnership for local investments.

Under the new scheme, investments by approved foreign private equity managers into a yuan-denominated fund must not exceed five per cent of the total amount of the fund, according to rules released by the Shanghai Financial Affairs Office this week.

The programme, known as the Qualified Foreign Limited Partnership plan, aims to "attract quality, long-term capital, boost domestic private investment and promote the development of yuan-denominated private equity funds", it said.

The trial will be launched around January 24, according to the new rules.

Under the trial programme, foreign private equity firms that want to participate must have at least $500 million in assets or manage at least $1 billion in assets.

Each fund must have at least two managers with at least five years of private equity investment experience.

Analysts said the programme, although lacking details such as portfolio investment restrictions, will make it easier for foreign private equity funds to explore investment opportunities in the world's second largest economy.