China: Channels for cross-border funds and RMB loans in Shenzhen

Last Updated: 14 May 2015

At the end of 2014, Shenzhen Municipal Government issued Pilot Measures on QDIE (Qualified Domestic Investment Enterprise), which makes PE funds to have another exit channel. To take this opportunity, we herein briefly introduce and comment on four relatively new forms of loans, and their respective entry and exit channels for PE funds which could be adopted by the Shenzhen market, namely the cross-border RMB loans in Qianhai, RMB overseas lending, QFLP (Qualified Foreign Limited Partner), and QDIE. It is worth noting that these channels, such as cross-border RMB loans in Qianhai and QFLP, are not only limited for Shenzhen but also exist at other localities with small variations, while RMB overseas lending can be used throughout the country. As for QDIE, it is a unique channel to Shenzhen.

  1. Cross-Border RMB Loans in Qianhai

Shenzhen Central Sub-branch of the People's Bank of China ("Shenzhen Sub-branch") issued the Interim Measures for Administration of Cross-Border Renminbi Loans in Qianhai on December 27, 2012, and issued the Implementing Rules of the Interim Measures for Administration of Cross-Border Renminbi Loans in Qianhai on January 6, 2013, which preliminarily established and improved the system of the cross-border RMB loans in Qianhai.

In accordance with such measures and implementing rules, enterprises registered in Qianhai could borrow RMB loans from Hong Kong banks operating RMB business for the construction and development of Qianhai. This opened a separate channel for entry of foreign loans aside from the then foreign debt channels, and enterprises registered in Qianhai could borrow cross-border RMB loans at low cost without taking up foreign debt quotas.

Even so, at the initial stage, the cross-border loans in Qianhai are few in numbers. The reason for that is that the expression, "used for the construction and development of Qianhai," was made a narrow understanding at that time, i.e., the loan project has to be located within Qianhai. Due to the small area and early stage of Qianhai, however, there exists no huge capital demand. Therefore, "used for the construction and development of Qianhai" was made a generalized understanding, i.e., construction and development of the enterprises of Qianhai themselves equates to the construction and development of Qianhai. In practice, for equity investment enterprises of Qianhai who borrow cross-border loans for the purchase of equity of enterprises outside Qianhai, and for finance leasing companies of Qianhai who borrow cross-border loans for doing finance leasing transactions with enterprises outside Qianhai, Shenzhen Sub-branch will not refuse their filing of cross-border loans on the ground that such use of loans does not conform to the regulations. Of course, if Qianhai enterprise shall borrow cross-border loans for the development of real estates out of Qianhai directly, Shenzhen Sub-branch will not accept such filing.

From the perspective of the lenders' qualifications, cross-border loan in Qianhai currently is still limited to Hong Kong banks operating RMB business, but there have been such transactions on the market where Hong Kong banks lend cross-border loans to enterprises of Qianhai by using funds of other local banks through funded sub-participation. Likewise, foreign non-bank institutions may also make loans to enterprises of Qianhai in the same way. As far as we know, Qianhai Administration Office has applied to the People's Bank of China for expanding the scope of who can be the lenders.

Generally speaking, the foreign debt quota for foreign-funded finance leasing enterprises is bigger than the general foreign-invested enterprises, thus there have been such transactions on the market where a lot of domestic enterprises use foreign finance leasing enterprises as the financing channels to lead funds of overseas affiliated party inbound by combining foreign loans borrowed by finance leasing enterprises with sale-leaseback. We understand that by using funded sub-participation, cross-border loans and sale-leaseback, domestic finance leasing enterprises registered in Qianhai can also use cross-border RMB loans in Qianhai as channels for similar financing channels purposes. And in such transactions, the finance leasing companies, as channel, could remove any produced liabilities and assets from the balance sheet through relevant arrangements.

Because a letter of credit issued by domestic banks in favor of the borrowing enterprises of Qianhai is required by Hong Kong loan-providing banks in many cross-border loan transactions, the total costs of cross-border loans have increased to a level similar to the interest rates of domestic RMB loans. In addition, the fact that Hong Kong banks receive numerous letters of credit issued by domestic banks also attracted attention of Hong Kong Monetary Authority, who in turn has put forward requirements. In the long run, Hong Kong banks might need to consider accepting guarantee of assets provided by enterprises of Qianhai or their affiliated enterprises directly. These guarantees are RMB overseas guarantees, for which the registration of external guarantee by the State Administration of Foreign Exchange is not required.

  1. RMB Overseas Lending

On July 5, 2013, People's Bank of China issued Circular of the People's Bank of China on Simplifying the Procedures for Cross-border RMB Business and Improving the Relevant Policies (the "Circular").

According to the stipulations concerning the RMB overseas lending business of non-financial institutions within the territory of China in Clause 3 of this Circular, we understand that:

  • The People's Bank of China does not put specific restrictions on the qualification of non-financial institutions operating RMB overseas lending business within the territory of China, the borrowers of overseas loans, or the loan quota;
  • There is no specific restriction on the RMB capital pool mode by which lead enterprises could muster RMB funds when domestic associated enterprises making loans to foreign investors;
  • Non-financial institutions within the territory of China can carry out overseas lending business without filing to local People's Bank of China, with specific business handled through bank institutions by providing true materials such as overseas loan agreement (including amount, terms, interest rates, purposes, the repayment method), the description of the parties' relationship, the funding source of loans, etc.

Compared with the restrictions on the qualifications of domestic and overseas enterprises, the borrowers of overseas loans, and the loan quotas specified under the domestic enterprises overseas foreign currency loan regulations, the overseas RMB loan business has been almost completely opened to domestic non-financial institutions, which has been proved by some completed RMB overseas lending business and the publicity materials regarding cross-border RMB business which are published by the Branch of the People's Bank of China of one municipality separately listed on the State Plan.

As far as we can know, the reason that People's Bank of China opened overseas RMB lending business to non-financial institutions within the territory of China is based on the following background: cross-border corporations have accumulated amounts of funds within the territory of China, but always have no favorable channels to make the funds returned to the headquarters. Despite of the advanced fund managing skills of headquarters of these cross-border corporations, within the limitation of domestic capital account controlling, most cross-border corporations' funds within the territory of China is operated separately with that of their overseas parent companies. In this regard, Shanghai Head Office of People's Bank of China launched "cross-border RMB lending business pilot project", giving RMB overseas loan quotas to those who meet the pilot requirements, such as Chinese & foreign-funded cross-border corporations registered in Shanghai. Within the scope of loan quotas, the headquarters of cross-border corporations can enter into loan agreements directly with their overseas parent companies (or affiliated enterprises), in which they can agree on an interest rate so as to finish the enterprise's own RMB overseas lending business. Based on this pilot project, People's Bank of China issued the Circular to further open the RMB overseas lending business of non-financial institutions within the territory of China.

With the increasing sophistication and experiences of "going out", more and more Chinese-funded enterprises realize that, compared with equity investment, creditor's right investment has advantages of prior status, convenience of recycling procedure, etc. Therefore, lots of overseas investment projects are accompanied with creditor's right investment besides "equity investment". However, as far as we know, most of these creditor's right investments are foreign currency loans rather than RMB loans, which might be partially related to the fact that many Chinese-funded enterprises are still not clear about the preferential policies of RMB overseas lending.

  1. QFLP (Qualified Foreign Limited Partner)

On July 15, 2014,SAFE issued the Circular of the State Administration of Foreign Exchange on Issues concerning the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign – invested Enterprises in Certain Areas, ("No. 36 Circular"), the Article 4 of which stipulated that "foreign-invested enterprises whose main business is investment (including foreign-invested investment companies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are allowed to directly settle their foreign exchange capitals and transfer the amount therefrom to the account of an invested enterprise according to the actual amount of investment, provided that the relevant domestic investment project is real and compliant."

In other words, foreign-invested equity investment enterprises in the pilot areas, after determining the investment project, may directly settle the foreign exchange capitals injected by foreign LP (Limited Partner) to the relevant invested company's account, without regard to considering the settlement quota issues.

Foreign-invested equity investment enterprises include foreign-invested venture capital enterprises, foreign-invested investment companies, and foreign-invested equity investment enterprises. However, the threshold for investors of foreign-invested venture capital enterprises is high and the invested company shall be a type of entrepreneurial enterprise, with foreign-invested investment companies mainly serving for cross-border companies. In addition, these two types of companies are deemed to be administrated as foreign direct investment in the terms of industrial policy. Therefore, few PE funds will enter the border by adopting these methods.

In contrast, the threshold for investors of foreign-invested equity investment enterprises is relatively low, and in terms of industrial policy, it is to be administrated as the domestic reinvestment of foreign invested enterprise, so it has a great advantage, but it is currently limited to certain pilot areas. On November 26, 2012, Shenzhen issued the Interim Measures on the development of Shenzhen's foreign-invested equity investment enterprises, and Qianhai will be the first pilot area. On February 6, 2013, after the promulgation of Shenzhen Investment Equity Practice pilot foreign-invested enterprises, the pilot area was extended to the whole city.

Before 2008, foreign PEs often enters china through establishing a wholly foreign-owned or joint venture enterprise and then converts the capital into RMB before investment. However, after the promulgation of Circular of the Comprehensive Department of the State Administration of Foreign Exchange on Relevant Operating Issues concerning Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-funded Enterprises on August 29, 2008 by SAFE, in addition to foreign-invested venture capital enterprises and foreign-invested investment companies, other types of companies are not allowed to use the settled capital funds to conduct equity investments. Foreign-invested equity investment companies do not enjoy any exception, and they have to apply for QFLP settlement amount from the SAFE. However, because SAFE is worried about the issues of hot money inflows through this channel and takes this very cautiously, as a result, this channel, as the carrier of QFLP pilot, has problems such as small investment amount and difficult approvals.

After the promulgation of No. 36 Circular, as Qianhai is not only the pilot area of No. 36 Circular but also the pilot area of QFLP, similar as other pilot areas, it will probably become the main channel for overseas PE capitals entering into China.

  1. QDIE(Qualified Domestic Investment Enterprise)

On December 8, 2014, the office of the People's Government of Shenzhen municipality promulgated the Shenzhen Municipal People's Government forwarding Municipal Finance Office's Interim Measures regarding the development of QDII overseas investment pilot work (Shenfuban Notice [2014] No.161), which marks the official establishment of Shenzhen QDIE pilot policy. At present, a number of institutions have obtained the pilot qualifications, including Great Wall Fu Hao Fund Management Co., Limited funded by Great Wall Securities, Southern Capital Management Co., Limited funded by Southern Capital Fund, and Shenzhen Qianhai Zhong Cheng Equity Investment Fund Management Co., Limited funded by Zhong Cheng Trust.

According to the above pilot measures, the investment management institutions initiated by domestic and foreign institutions in Shenzhen may apply for "overseas investment fund management company," pilot qualifications, and then raise funds from QDII within the approved foreign exchange quota. Such "overseas investment entity" shall be established and managed by means of entrustment in Shenzhen and the raised funds shall be used for the direct investment of foreign projects.

Compared with QDII and pilot QDLPs in certain area, QDIE has great breakthroughs in terms of the manager, the threshold for foreign investors and the investment scope etc. In fact the Measures does not impose any restriction on the investment scope of the "foreign investment entity", but from our understandings, QDIE shall not invest in the areas forbidden by the Administrative Measures for Outbound Investment (Order of the Ministry of Commerce [2014] No.3).

Nevertheless, QDIE has a few sparkling points. First, in respect of the amount of investment, Shenzhen QDIE pilot has obtained 1 billion USD quotas approved by the SAFE. However, whether QDIE pilot shall have the same problems as former QFLP that the investment amount is small and acquisition of approval is difficult is yet to be seen. Second, the expectation for RMB appreciation may make it difficult for fund management companies to raise funds within the territory of china as the foreign investment can only use foreign exchange rather than RMB. However, whether direct RMB overseas investment is permitted in the future remains to be seen. Third, whether the "foreign investment entity" conducting overseas investment needs to go through the procedures with the NDRC, MOFCOM and SAFE like the normal enterprises remains to be seen as the pilot measures do not have specific regulations in respect of that issue. And these points may greatly affect QDIE's role practically.

The above are the brief introductions and commentaries for the four new channels for cross-border funds in the Shenzhen market. Please don't hesitate to contact us if you have any queries. We remain at your disposal for any further discussion concerning this topic.

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.

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
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