PE waits for currency hub details

China’s regulators have yet to approve implementing details for the Qianhai currency hub, where resident firms can take advantage of liberalised cross-border RMB transactions.

A wave of regulatory policies for Qianhai, China’s experimental foreign currency hub across the border from Hong Kong, have been announced in the past weeks, but investors are still awaiting the implementing rules for the policies, according to industry sources.

According to research firm Z-Ben Advisors, in total, National Development and Reform Commission officials have announced 14 of 22 planned policies regulating business and investments activities in Qianhai since the hub was unveiled last summer. The remaining eight policies are expected sometime in the first half of 2013.

The government knows the general direction it wants to take these regulations, but private equity is still waiting for the specific implementing rules, which will be the key to attracting investors, said James Wang, partner at Han Kun Law Offices.

“Right now, there isn’t much to talk about for foreign private equity,” he said. To his knowledge, no private equity firm has yet set up in Qianhai.

China PE hub

None of the most recent rules have managed to get their implementation paperwork approved yet, added Sisi Shi, senior manager for corporate accounting services at accounting firm Dezan Shira & Associates in Shenzhen. If the government really wanted to push these policies through, it could do it in days, but other times the process can take up to a year, she explained.

“Qianhai is mostly a hot topic, but there’s not any real action yet,” Shi said.

The currency hub is expected to allow private equity firms to make cross-border RMB transactions without Ministry of Commerce approval and to raise RMB funds in Hong Kong to invest in the mainland. High hopes are pinned on its success, with some comparisons being made to the original special economic zones set up 30 years ago in Shenzhen and Zhuhai, which helped transform China's economy.

The NDRC has set a 1H 2013 deadline for implementing most of Qianhai’s new policies, but Wang is sceptical that deadline will be met. He expects certain implementing rules – especially tax preferential policies – will be released in the next few weeks, but some policies regarding foreign private equity may not be finalised until the end of the year.

Despite the wait, it is expected that Qianhai’s regulations will be more favourable towards foreign private equity

Qianhai is mostly a hot topic, but there's not any real action yet.

Sisi Shi

than those in other cities. “[The government] is certainly welcoming of foreign private equity,” added Johanna Zhang, analyst at Z-Ben Advisors, citing incentives such as tax cuts and housing allowances.

To date, around 20 large foreign private equity firms have “expressed interest” in Qianhai with research and visits. According to Zhang, Morgan Stanley and Credit Suisse have applied to set up offices in the hub. 

Hony Capital's founder and chief executive John Zhao said his firm plans to be a pioneer. “We’d like to raise our next RMB fund in Hong Kong and invest in China,” he told Private Equity International earlier. 

Last summer, Chinese authorities held discussions with The Blackstone Group and Kohlberg Kravis Roberts about funds in Qianhai, according to media reports.