Shanghai has been authorized to become the first pilot city for a new RMB cross-border program – RQFLP (Qualified Foreign Limited Partner, RQFLP) which means offshore RMB can be raised and used for private equity investments in the Mainland. Following traditional FDI (Foreign Direct Investment) and RQFII (RMB Qualified Foreign Institutional Investors), RQFLP has become a new channel for the backflow of offshore RMB. Bank of Shanghai and the Hong Kong subsidiary of Haitong Securities (one of biggest securities in mainland China) have signed a memorandum of cooperation to be the first to issue RQFLP products in Hong Kong. The total quota is about 1 billion RMB. Bank of Shanghai will provide custody services and Haitong securities will take charge of the design and issuance of the RQFLP products in Hong Kong. After being raised in Hong Kong, these offshore RMB will enter into Shanghai for private equity investments.
Unlike the RQFII program, which is only allowed to invest the stock and debt markets, RMB raised through RQFLP can be invest in unlisted companies, private equity of listed companies, convertible bonds, and sector funds which further broadens the channels for offshore RMB investments. This is also the first time for offshore RMB will be able to be brought back for ‘real economy’ investments, which is another step towards Shanghai’s goal of becoming an international financial center.
Although the detailed administrative measures and operating rules have not been issued officially, we expect that the trend of RQFLP is clear and relevant products will become an new important revenue source for securities companies.