m88 bonus Pilot – An Overview of Policies in Nine Cities

Since Shanghai initiated the first Qualified Foreign Limited Partnership (m88 bonus) pilot program in 2011, the m88 bonus pilot program marked its 10th anniversary this year. In the past decade, the m88 bonus pilot program has evolved and improved significantly, with an increase in the number of piloted cities, a more mature management system, as well as an expanded investment scope. With these changes, the pilot program has become a predominant route for foreign institutions to access China equity market, both the primary and the primary semi-markets, opposite to secondary markets (i.e., listed markets), in addition to the commonly sought foreign direct investment (FDI) route. Up to now, a total of thirteen (13) cities have established the m88 bonus pilot program, including the major cities like Shanghai, Shenzhen, and Beijing.

We have compared the m88 bonus policies of these thirteen cities, reaching a conclusion that though similar, the m88 bonus policies of each city have distinct characteristics that provide diverse options for foreign institutions. Here below we summarize the key points of the m88 bonus policies (each individually as the “m88 bonus rule”) in nine major cities (i.e., Shanghai, Shenzhen, Beijing, Tianjin, Chongqing, Qingdao, Hainan, Zhuhai and Guangzhou) which most concern foreign institutional investors participating in the m88 bonus pilot qualification application process.

I. m88 bonus Pilot Structure

Taking Shanghai as an example, foreign institutions participating in the application process for m88 bonus pilot qualification must first set up a foreign-invested equity investment management enterprise (the “m88 bonus fund manager”) in China, and then they must set up a foreign-invested equity investment enterprise (the “m88 bonus fund”). Though the names of the “m88 bonus fund manager” and the “m88 bonus fund” vary according to different m88 bonus rules, the basic structures of m88 bonus pilot program are the same – i.e., the m88 bonus fund manager establishes the m88 bonus funds and/or conducts investment management for m88 bonus funds as entrusted. A m88 bonus fund manager may be formed as a company or a partnership enterprise, while a m88 bonus fund is usually formed as a partnership enterprise.

II. Application Qualifications

2.1Foreign m88 bonusvestors

Aside from Beijing, Qingdao and Zhuhai, the other six cities do not have a requirement for license-holding or a minimum asset under management (AUM) on foreign shareholders of the m88 bonus fund manager. However, in practice, various locations still have certain soft requirements for the background and qualifications of foreign investors. For example,, Shanghai mainly welcomes foreign asset management institutions that are internationally renowned or leading in professional segments.

2.2Registered Place, Registered Capital, Paid-m88 bonus Capital and Senior Management Personnel

Registered Place: All nine cities require both the m88 bonus fund manager and the m88 bonus fund to be established in the city where they intend to apply for the m88 bonus qualification.

Registered Capital and Paid-in Capital: Some pilot cities set minimum thresholds for the registered capital and paid-in capital of the m88 bonus fund manager, for example, Shanghai, Chongqing and Zhuhai require the registered capital of a m88 bonus fund manager to be no less than USD 2 million, while Tianjin requires the paid-in capital to be no less than RMB 10 million (approximately USD 1.55 million).

Senior Management Personnel: The m88 bonus rules of Shanghai, Tianjin, Qingdao, Chongqing, Hainan and Zhuhai require a m88 bonus fund manager to have at least two senior management personnel, each having no less than two years experiences in equity investment or investment management as well as hold a post at senior management level for no less than two years; Beijing requires no less than two senior management personnel as well, each having at least three years of equity investment or investment management experience. Notably, Shenzhen and Guangzhou have no explicit requirements on the number and qualification of senior management personnel.

III. Management Model and Fundraism88 bonusg

3.1Management Model

There are three m88 bonus management models at present, namely:

(1)"A foreign-invested m88 bonus fund manager manages foreign-invested m88 bonus funds",

(2)"A domestic m88 bonus fund manager manages foreign-invested m88 bonus funds"

(3)“A foreign-invested m88 bonus fund manager manages domestic m88 bonus funds."

Up until now, Shanghai, Beijing, Shenzhen, Qingdao, Hainan, and Zhuhai permit the aforesaid three management models, while Tianjin, Guangzhou and Chongqing have not yet permitted the second model, i.e., "a domestic m88 bonus fund manager manages foreign-invested m88 bonus funds".

It is noteworthy that the Tianjin m88 bonus rule requires the m88 bonus fund manager to subscribe no more than 5% of the fund units of each m88 bonus fund, while the m88 bonus fund manager shall be the general partner of the m88 bonus fund in accordance with the Zhuhai m88 bonus rule. That being said, the general partner and the fund manager of a m88 bonus fund shall be the same legal entity in both cities.

3.2Fundraism88 bonusg

All nine cities allow m88 bonus funds to be formed purely through offshore fundraising, or through a combination of onshore and offshore fundraising.

Except for Shenzhen and Guangzhou, the other seven cities have set minimum thresholds for the fundraising amount, the minimum investment amount of a single limited partner, as well as a requirement on the qualification for the foreign investors of the m88 bonus fund. Among them, Zhuhai offers a lower minimum threshold, particularly for the capital contributions subscribed by Hong Kong/Macao investors.

Regarding the qualification requirements for foreign investors of m88 bonus funds, most piloted cities require foreign investors to be long-term institutional investors, such as sovereign funds, pension funds, endowment funds and charitable funds, and they further stipulate the requirements on the AUM, governance structure and investment experience of foreign investors.

IV. Whether A m88 bonus Fund Manager Shall Be Registered As A Private Fund Manager

Shenzhen, Hainan, Qingdao, Guangzhou, and Zhuhai explicitly stipulate that the m88 bonus fund manager shall be registered as a private fund manager (PFM) with the Asset Management Association of China (AMAC) before launching the first m88 bonus fund, while no such requirement can be found in the m88 bonus rules of Shanghai, Chongqing and Tianjin. In practice, a m88 bonus fund manager incorporated in Shanghai is not required to be registered as a PFM with the AMAC if it does not raise funds onshore. Notably, if a m88 bonus fund manager hopes to raise a RMB fund in China, it is mandatory to register itself with the AMAC as a PFM in accordance with the relevant regulations governing private funds before conducting fundraising activities, and file the RMB fund with the AMAC whether or not there are such explicit requirements under the m88 bonus rules of each piloted city. We learnt that Beijing applies the same rule as Shanghai in practice.

V. m88 bonusvestment Scope

The permissible investment scope of m88 bonus funds varies among the nine cities, out of which Shanghai, Beijing, Shenzhen, and Hainan offer a relatively broad investment scope.

1)All m88 bonus funds established in the nine cities are allowed to invest in equities of unlisted company;

2)Both Shanghai and Beijing allow m88 bonus funds to invest in non-performing assets, mezzanine debts, preference shares and debt-to-equity swaps, whilst Shanghai has approved m88 bonus funds investing in non-performing assets and mezzanine debts;

3)Shanghai, Beijing, Shenzhen, and Qingdao allow m88 bonus funds to invest in non-publicly traded equities (including acquiring listed shares through block trade, transferring by agreements and private placements) and convertible bonds of listed companies;

4)Shenzhen explicitly allows m88 bonus funds to invest in onshore private equity and venture capital funds; Qingdao allows m88 bonus funds to invest in industrial funds; Shanghai currently only allows m88 bonus funds to invest in other onshore funds on a case-by-case basis; and Zhuhai explicitly prohibits m88 bonus funds from investing through Fund of Funds;

5)The investment scope of m88 bonus funds under the Hainan m88 bonus rule appears to be the most flexible of all nine cities. Hainan adopts a “negative list” regime for the management of m88 bonus funds’ investment scope, that is, the m88 bonus funds may invest in any industry that is not included in the negative list. However, it remains to be seen how such a rule will be implemented in practice.

6)Currently, the investment scopes of m88 bonus funds in Tianjin, Chongqing, Zhuhai, and Guangzhou are limited to equities of unlisted companies. Tianjin and Chongqing further specify the industrial sectors which m88 bonus funds are allowed to invest. Specifically, Tianjin encourages m88 bonus funds to invest in strategic emerging industries within Tianjin, while Chongqing encourages investment in industries of high-end manufacturing, high-tech, modern services, energy conservation and consumption reduction, new energy, environmental protection, and industries that coordinate urban and rural development and promote industrial restructuring within Chongqing.

Our Observations

In a comparison of the m88 bonus rules in these nine cities, we observed similarities in basic structure, application procedures, qualification requirements for foreign investors and senior management personnel. However, there are significant differences among these cities in terms of the management model, investment scope, policy orientation and implementation practice, which may result in different foreign investors being attracted to different cities. Our clients are advised to closely follow the development of practices, and choose suitable location for pilot application to better seize the opportunities investing in China.