China’s new alternatives investment scheme for foreign asset managers is being rolled out to Qingdao, with provincial rivalry tipped to spark competition with Shanghai.
The qualified domestic limited partnership (QDLP) scheme launched in September 2013 in Shanghai to allow foreign hedge fund managers to raise renminbi to invest internationally.
And the scheme could be further extended to the city of Tianjin, said Sam Chen, an analyst at Shanghai-based consultancy Z-Ben Advisors.
Qingdao this week became the second city after Shanghai to launch the QDLP programme. Approval has been given by the People’s Bank of China and the State Administration of Foreign Exchange, but the total quota granted has not yet been announced. However, applications for licences are now being accepted.
Chen said the Qingdao QDLP rollout would be a competitor to Shanghai, given the rivalry between the local governments running the schemes.
Qingdao’s QDLP will be similar, but not identical, to Shanghai’s version; the same goes for Shenzhen’s qualified domestic investment enterprise (QDIE), launched last year.
Both the Qingdao and Shanghai programmes allow foreign alternatives managers to apply for a licence. Licensed foreign managers are required to register a local entity in Qingdao, can raise renminbi in China in partnership with local financial institutions and can invest money in overseas alternative assets.
The big difference between the two schemes is that Qingdao expands the overseas investment scope beyond secondary-market assets and hedge funds to primary markets, such as mergers & acquisitions and commodities.
The move comes as the Shanghai Financial Services Office has started to accept applications for the second batch of QDLP managers. The scheme is expected to grant at least six additional licences to foreign managers, including those in private equity and real estate.
Already-licensed managers can also apply for quota of more than $50 million depending on the products they plan to deal in, said a Shanghai-based lawyer familiar with the scheme. With regard to Shanghai’s original licences, there were complaints that a maximum of $50 million was given no matter which products the firms planned to market.
Separately, Qingdao’s Financial Services Office confirmed that the government of Shandong province, where Qingdao is located, was in discussions to give an investment mandate to China's central National Council for Social Security Fund (NCSSF) in order to grow the province’s pension savings.
Local media has speculated about the prospect for some months now, especially after various NCSSF officials visited Shandong.
Zheng Bingwen, director for the Centre for International Social Security Studies at the Chinese Academy of Social Sciences, has estimated that Shandong’s public pension fund size is near Rmb200 billion ($32 billion), half of which it is likely to go to the NCSSF in a mandate. Such a mandate would boost the NCSSF’s AUM to Rmb1.34 trillion, from Rmb1.24 trillion at the end of 2013.
The FSO also said that three financial advisers, including Shanghai-based Noah Private Wealth Management and Beijing-based peer-to-peer lending firm CreditEase, have established wealth management services for high-net-worth individuals in Qingdao.
Qingdao’s pilot economic zone was set up in February 2014 with a focus on wealth management. It is led by Guo Shuqing, the former chairman of the China Securities Regulatory Commission, who is expected to push forward reforms in Shandong.