Shenzhen to double QDIE amid fight for flows

The city plans to raise permits for its cross-border investment scheme to 15 this year as competition intensifies with Shanghai and Qingdao, which offer similar programmes.
Shenzhen to double QDIE amid fight for flows

Shenzhen plans to nearly double the number of QDIE holders in the city this year as the fight for flows between China’s numerous cross-border schemes intensifies.

In an effort to lure funds from other cities, Shenzhen said it planned to accelerate innovation in its qualified domestic investment enterprise (QDIE) programme and build on its geographical location next to Hong Kong.

With Shanghai and Qingdao offering similar schemes, the fight for flows looks set to continue.

In its financial reform plans announced last week, the Shenzhen Municipal Office said it intended to expand the number of QDIE holders to at least 15 managers this year.

It added that it would promote financial services in Qianhai, the city’s special economic zone which could be included in Guangdong’s free-trade zone.

Planned reforms include building a platform for Hong Kong-China mutual recognition, launching Shenzhen-Hong Kong Stock Connect and approving the new QDIE licences.

“In total eight firms have received QDIE approval, but we have not made a public announcement,” said a spokesman for the Shenzhen Municipal Office of Financial Services, which leads the QDIE programme. However, he declined to provide details of the qualified managers.

One source who has participated in the QDIE programme said there were eight QDIE applications in the first round in January, which could mean the city’s Financial Office had approved all of them.

The QDIE programme was launched quietly in December last year after it was granted a total of $1 billion quota by the State Administration of Foreign Exchange (Safe) in mid-2014.

AsianInvestor has recently established that two other firms to have received QDIE licences are Everbright Prestige Capital Asset Management, a Shenzhen-registered subsidiary established by China Post Fund and China Everbright; and Penghua Asset Management, a Shenzhen-registered subsidiary of Penghua Fund Management.

In addition, four firms received approval in January, including China Southern Capital, a subsidiary of China Southern Asset Management; China Merchants Wealth, a subsidiary of China Merchants Fund; Great Wall Fu-Hao Fund Management, a subsidiary of Great Wall Securities; and Shenzhen Qianhai CCT Asset Management, a subsidiary of China Credit Trust.

According to Penghua Asset Management’s marketing materials, the firm has launched the first QDIE segregated account product, which is advised by Shenzhen-based manager Splendor Capital Management, and will invest in a hedge fund managed by UK-based Credence Global.

Alongside Shenzhen’s efforts, Shanghai expanded its qualified domestic limited partnership (QDLP) scheme last month, and Qingdao also launched its own QDLP in February.

The Shanghai Financial Services Office approved five more managers for its QDLP programme in February, with each receiving a quota of $100 million; the office plans to grant more licences this year.

Both QDIE and QDLP allow foreign managers to use renminbi to invest in overseas alternative assets. But QDIE has more flexibility in that it can also be used by domestic asset managers. It also provides greater flexibility in terms of the products’ legal structures, and its quota approval process makes decisions on a case-by-case basis.

“It is a kind of competition between Shenzhen, Shanghai and Qingdao. If [Shenzhen] expands the programme too slowly, foreign managers might consider applying for the licence in other cities,” said Sam Chen, an analyst at Shanghai-based consultancy Z-Ben Advisors. 

“Foreign managers definitely have to consider the location of the scheme, because they are required to establish a wholly foreign-owned enterprise (WFOE) there after they received the licence.”

Bruce Li, general manager of China business at Canyon Partners, a global credit–oriented alternative asset manager which has a Shanghai licence, said the diversity of investors buying into his firm's QDLP product was beyond his expectations.

He noted that clients had come from securities firms, trust companies, financial institutions and even state-owned enterprises.

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