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UPDATE 1-China revives QDLP outbound investment scheme in boost for foreign funds-sources

Published 08/02/2018, 02:43 pm
Updated 08/02/2018, 02:50 pm
© Reuters.  UPDATE 1-China revives QDLP outbound investment scheme in boost for foreign funds-sources
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(Adds more details on investment programme, yuan appreciation and policy)

SHANGHAI, Feb 8 (Reuters) - China has resumed an outbound investment scheme after a two-year hiatus, granting licenses to about a dozen global money managers, sources said, signaling that Beijing is less worried about capital outflows amid a surge in the Chinese currency.

Foreign fund managers with newly awarded quotas will be able to raise money in China for investment overseas under the Qualified Domestic Limited Partnership (QDLP) plan for the first time since late 2015.

The quota-based Shanghai scheme was unofficially suspended when China tightened capital controls amid turmoil in its stock and currency markets.

The industry had expected that each newly-qualified firm would be allowed to invest up to $50 million under QDLP, but the sources said the quotas were not distributed evenly.

Among the firms awarded fresh licenses this year, the investment arms of JPMorgan Chase & Co (NYSE:JPM) JPM.N , Standard Life Aberdeen SLA.L , Manulife Financial MFC.TO and Allianz ALVG.DE have over the past month set up outbound investment subsidiaries in Shanghai to conduct QDLP businesses, according to sources and registration information on government websites.

Other asset managers preparing for QDLP businesses include the asset management arms of BNP Paribas BNPP.PA and AXA AXAF.PA , as well as Robeco and Mirae Asset.

Upon receiving a license, asset managers are required to complete fundraising within six months.

The Shanghai Municipal Financial Service Office, which is in charge of the QDLP business, didn't return calls seeking comment. The asset managers declined to comment.

China's foreign exchange regulator, which said in December that Shanghai had started vetting new QDLP licenses, didn't immediately respond to a fax seeking comment on the matter.

From 2013-2015, Shanghai awarded QDLP quotas worth a combined $1.23 billion to 15 asset managers including UBS Asset Management, BlackRock, Oaktree Capital OAK.N , Citadel, OZ Management OZM.N and Man Group EMG.L .

Another offshore investment scheme, the Qualified Domestic Institutional Investor (QDII) programme, apparently remains suspended. No new QDII quotas have been granted since 2015.

Although Chinese investors can buy Hong Kong stocks via the Connect scheme, suspension of the QDII and QDLP schemes have greatly limited their ability to allocate assets globally.

YUAN ON STRONGER FOOTING

China burned through nearly $1 trillion in foreign exchange reserves from mid 2014 to early 2017 as authorities sought to shore up the falling yuan and reduce potentially destabilizing capital flight.

But the Chinese currency has staged a remarkable turnaround since, thanks largely to a floundering U.S. dollar and stronger-than-expected economic growth in China.

The yuan rose around 6.8 percent against the greenback in 2017 and is up another 4 percent so far this year. Forex reserves have climbed for 12 straight months. the current environment, yuan's strong appreciation has greatly eased the fears of capital outflows," said Stephen Zhu, Shanghai-based representative of Ashland Partners, which provides compliance consultation and verification services to the asset management industry.

"Resumption of QDLP also fits with China's broader policy shift toward greater financial deregulation," he said, referring to Beijing's recent pledge to widen foreign access to its giant financial sector.

Revival of the QDLP business would also help support Shanghai's longer-term ambition to challenge other Asian cities such as Singapore and Hong Kong in attracting global asset managers.

Shanghai, which aims to become a global financial center by 2020, is already ramping up efforts to woo global asset managers to settle in Lujiazui, China's answer to Manhattan.

So far, 34 global asset managers have set up wholly-owned units in Shanghai - the prerequisite for launching QDLP and onshore private fund businesses, while 27 others are setting up, or plan to set up subsidiaries in the city.

"We hope that Shanghai can become an Asia-Pacific center for global asset managers ... and the city of choice to launch their China businesses," said Neo Yuan, a director at the Shanghai Lujiazui Financial City Authority.

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