Hony Capital, the largest private equity firm in Asia in terms of funds raised in the last five years, plans to be among the first participants in an experimental financial hub being built in Qianhai near Shenzhen, just across the border from Hong Kong.
Private equity firms approved to operate in the Qianhai “special zone” will be allowed to undertake far easier cross-border RMB transactions and to raise RMB funds in Hong Kong, where the currency trades freely.
Firms raising funds in Hong Kong would then be permitted to invest the capital anywhere in China as if they were a domestic fund, according to Wang Jin Xia, spokesman for the Shenzhen government.
While full details of the project have not yet been worked out, John Zhao, Hony’s founder and chief executive, said his firm has concrete plans to be among the pioneers in the special zone.
“We’d like to raise our next RMB fund in Hong Kong and invest in China,” Zhao said. “Hong Kong has a lot of RMB but more important, Hong Kong represents a mature institutional mindset and mature governance and could serve as an example for China. In China there are not such strong institutions that appreciate the GP-LP structure.”
In June, China designated the Qianhai region as a testing ground for liberalised currency movements in line with the country’s aim of making the Chinese yuan a global currency.
Zhao would like the Qianhai zone to develop further into an oasis where foreign private equity funds would be allowed in and treated the same way as domestic funds in all respects. “[Qianhai] will put foreign funds on the level with domestic funds. This is what we’re advocating for.”
Many had hoped and some had assumed that the Qualified Foreign Limited Partner programme would work in a similar way. Those hopes were dashed in May when China’s regulators ruled that foreign-sponsored RMB-denominated funds raised through the QFLP programme will not receive the same treatment as domestic funds.
“The QFLP was designed to solve the convenience issue with currency conversion,” Zhao said. “It was never meant to be more than that. Of course there were efforts to push further, but that was turned down. I was always very clear from day one that the QFLP [aimed to solve] one problem, but not all.”