China: NDRC Reply on RMB Fund with FIE GP

Last Updated: 3 June 2012
Article by ZHANG Yi, Alan Du and Hu Xia

Recently, it was reported by various media sources that the National Development Reform Commission (NDRC) had issued certain policies requiring an RMB fund (the 'FIE GP Fund') with a foreign invested enterprise (the 'FIE') acting as the general partner (the 'FIE GP') and domestic investors (exclusive of FIEs established in China) acting as limited partners to be regarded as a foreign investor. Being defined as a foreign investor means that the portfolio investments of such a FIE GP Fund shall be subject to foreign investment approvals, which are read by the public as referring to the approvals from the Ministry of Commerce or its local counterpart (MOFCOM).

International private equity firms often structure their RMB funds in the form of FIE GP Funds. As a result this news caused great concern among them because their RMB funds will be defined as offshore funds in regard to making portfolio investments and as a result there will probably be little chance of raising new RMB funds in the form of FIE GP Funds. After reading the related document issued by the NDRC and based on information from various authorities, the authors believe that there is some misunderstanding in the market about the impact of this news.


Direct investment in China by foreign investors is subject to MOFCOM approval, and shall also be guided by the foreign investment policies, mainly the Catalogue of Industries for Guiding Foreign Investments (the 'Foreign Investment Catalogue'), which categorises industries into four types: encouraged, permitted, restricted and prohibited industries for foreign investment. Furthermore according to the Interim Provisions for Investment in China by Foreign Invested Enterprises, FIE's investment in encouraged or permitted industries requires no MOFCOM approval, while FIE's investment in restricted industries is still subject to approval. FIEs are not allowed to invest in prohibited industries. Current laws and regulations fail to address the treatment of investments made by an enterprise invested in by FIE(s), such as the FIE GP Fund, resulting in the uncertainty of whether the FIE GP Fund's portfolio investments shall be subject to the Foreign Investment Catalogue and MOFCOM approval.

Before the issuance of the NDRC Reply to be discussed below, in the authors' view, the treatment of FIE GP Funds shall be no less favorable than that to FIEs, which means, (i) the FIE GP Fund's investments in encouraged or permitted industries shall not be subject to MOFCOM approval; (ii) due to the lack of regulation regarding the approval requirement and process, the FIE GP Fund's investments in restricted industries shall not be subject to MOFCOM approval; and (iii) FIE GP Fund's investments in prohibited industries is likely to be prohibited. Having said that, there exists uncertainties and local authorities in different areas may have different views and practices.

Breakthrough by local rules

The Shanghai Government made a breakthrough on this issue by promulgating the Implementation Measures on Foreign-invested Equity Investment Pilot Scheme in Shanghai (the 'Shanghai Pilot Measures') on December 24 2010 and is widely recognised for its introduction of the concept of QFLP (Qualified Foreign Limited Partner). The Shanghai Pilot Measures also bring a favourable treatment (the 'QFGP Treatment') to the FIE GP Fund that, if the FIE GP is qualified and approved to participate in Shanghai's pilot scheme, it may make up to 5% capital contribution to the FIE GP Fund and such capital contribution shall not affect the original nature of the FIE GP Fund, which means the FIE GP Fund will be treated as a domestic fund without foreign investment, regardless of the fact that its FIE GP's capital contribution. Before the NDRC Reply, it was unclear whether that could be further aggressively interpreted as that the FIE GP Fund's portfolio investments shall not be subject to foreign investment policies. Also, whether the QFGP Treatment pursuant to the Shanghai Pilot Measures, a local policy, may be recognised in other areas outside Shanghai is still unclear.

The NDRC Reply

The authors understand that the said news came from the Reply on Relevant Issues Relating to Foreign-Invested Equity Investment Enterprises issued by the central level NDRC (the 'NDRC Reply') in response to the Shanghai NDRC's request to clarify the applicability of the Foreign Investment Catalogue to the Blackstone RMB fund.

We believe the Blackstone RMB Fund is in the form of FIE GP Fund receiving the QFGP Treatment according to the Shanghai Pilot Measures. The NDRC Reply clarifies that, the Blackstone RMB fund and other RMB funds in the similar structure (i.e., the FIE GP Funds) shall be administrated by foreign investment rules and policies and the Foreign Investment Catalogue is applicable to the portfolio investments of such funds.

However, the NDRC Reply doesn't require the FIE GP Funds to follow the MOFCOM approval processes for portfolio investments as if they are foreign investors, which is beyond the authority of the NDRC.

After the issuance of the NDRC Reply, relevant NDRC officials further explained at a non-public occasion that (i) the NDRC Reply was a reply to Shanghai NDRC's request on specific issues, but not a new policy or regulation; (ii) when making portfolio investments, such FIE GP Fund shall go through the foreign investment project approval process with NDRC or its local counterpart. We understand even for foreign investors, such NDRC approval is often unnecessary in general M&A deals if no new construction project is involved. Given that "the NDRC Reply is not a new policy or regulation", the authors tend to believe the same treatment regarding NDRC approval shall apply for the FIE GP Fund, and therefore, the impact on FIE GP Funds in respect of NDRC approval process may not be substantial.

Based on certain information from MOFCOM, we understand MOFCOM's position is consistent with the NDRC Reply. MOFCOM also indicated that the FIE GP Funds shall follow the foreign investment policies, mainly the Foreign Investment Catalogue. No investment is allowed in the prohibited industries, but the investments in encouraged, permitted and restricted industries are generally allowed, provided that restrictions in restricted industries shall be followed (this appears not to be a big issue given that the restrictions are often the upper limit of foreign investment such as 50% etc., and the indirect foreign investment percentage in the FIE GP Funds is much less than that). In respect of the approval process, as indicated by MOFCOM, the FIE GP Fund's portfolio investments are not subject to MOFCOM approvals, but prior oral consultation with MOFCOM before making investments is suggested, especially for investments in restricted industries.


Based on the above, we believe the impact of the NDRC Reply is not as serious as indicated in the news. For the portfolio investments of FIE GP Funds, foreign investment policies, mainly the Foreign Investment Catalogue, shall be followed. However, in respect of the approval process, MOFCOM approval is generally unnecessary, and NDRC approval is required presumably for investments involving new construction projects, which is often not the majority of the portfolio investments of an FIE GP Fund.

The NDRC Reply is not good news for the FIE GP Funds, but on the other hand, it brings about some certainty regarding the treatment to their portfolio investments. For the FIE GP Funds with no focus on the prohibited industries, the impact of the NDRC Reply may not be substantial.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
R&P China Lawyers
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
R&P China Lawyers
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions