The announcement that China's Qualified Domestic Limited Partnership (QDLP) programme will expand to Hainan will likely have foreign asset managers looking closely for any signs that quotas will soon be eased across the nation, giving them more opportunity to sell investment products to institutional investors and wealthy individuals. 

The China Securities Regulatory Commission, the main regulator of the securities industry in China, on Friday (April 9) jointly issued guidelines – along with the People’s Bank of China and three other government agencies - that introduced 37 measures aimed at opening up Hainan island to foreign asset managers via QDLPs.

The QDLP programme allows foreign asset managers to market offshore investment products to Chinese institutional investors and high net wealth individuals (HNWIs). The new guidelines cover a range of asset management products including wealth management products, private equity management products, mutual funds and insurance asset management products.

The rules changes a part of plan by Beijing to turn the entire island of Hainan into a free trade port by 2025. It has been fast-tracking reform since the release of its masterplan in 2020.

For investors, the hope is that the expansion of QDLP into Hainan will be followed by an easing in quotas, allowing them to sell more investment products to investors across the nation. Beijing certainly appears to be gradually easing its restrictions; earlier this month it expanded QDLP programme from its pilot city of Shenzhen to the entirety of Guangdong province, injecting an additional $5 billion in quotas. 

The Guangdong province project (including Shenzhen) joins a QDLP pilot scheme footprint that now includes Shanghai, Beijing, Jiangsu, Chongqing, Tianjin, Qingdao and Hainan.

The QDLP scheme was first launched in Shanghai in 2012 to provide global asset managers access to high-net-worth and institutional investors in China, allowing them to raise renminbi funds onshore that are focused on overseas investment.

Melody Yang,
Simmons & Simmons

Melody Yang, a Simmons & Simmons partner based in Beijing, told AsianInvestor that the trend of expanding the number of pilot cities and adding more quotas under the scheme is expected to continue.

“Currently, QDLP mainly serves high net wealth clients while different products from different houses may vary,” Yang said. She said that China, unlike other countries whose pension managers can invest a significant proportion of funds offshore, still lags in getting institutional investors involved in QDLP-like products.

She said that this could potentially provide foreign players with a greater opportunity to approach institutional giants, such as pension funds, in the future. 

“QDLP acts as a supplement and hedging tool for Chinese investors which allows them to touch on offshore assets,” she said 

With access becoming less of an issue, focus is now turning to product development and demand, according to a Z-Ben Advisors report.

It is a misalignment of these two aspects that has seen global managers struggle to generate significant flows from retail investors. Demand remains concentrated in China-concept offerings, giving mass retail access to offshore-listed China assets, the report said.

Yang noted that, in terms of products types, it really depends on foreign players' in-house choices.

INCREASING PARTICIPATION

Most recently, US-based PIMCO, an overseas credit private fund, this month launched its first QDLP product in China after receiving QDLP qualification in November last year. A company spokeswoman told AsianInvestor in an email that as the second largest bond market in the world, China is strategically important for the firm both from portfolio management and distribution perspectives.

Shelley Liu, Barings

In December last year, US rival Barings also launched its first onshore fixed-income private fund in China, reflecting its ambition to expand and focus on domestic clients in the country.

Shelley Liu, country head of China at Barings, told AsianInvestor that as far as QDLP is concerned,  the firm currently has two products serving high net wealth and institutional investors with a focus on global high yield investments.

“We are looking closely to launch new products with the proper timing,” she said 

Though Barings declined to provide figures related to those products, Liu said that private funds were serving investors with long-term investments prospects rather than chasing short-term market trends. 

Barings currently has 15 experts based in Shanghai serving onshore China businesses and is backed by investment expertise globally such as in Hong Kong.

Meanwhile, the list of foreign asset managers hoping to take advantage of the QDLP boom is getting longer.

In November last year, Switzerland-based Pictet Asset Management  opened its wholly foreign-owned enterprise (Wfoe) in Shanghai to prepare for QLDP products launches.

And in March this year, Netherlands-based Aegon Asset Management appointed Franky Tam as general manager and legal representative of its new wholly foreign-owned enterprise (Wfoe) subsidiary in in order to be prepared for demand in QDLP products.