New Pilot Program for Shanghai-based RMB Funds – Missing Pieces Falling into Place


In the latest regulatory development in the closely watched RMB partnership funds sector that has been taking shape over the past year, three Shanghai Municipal governmental agencies — the Shanghai Municipal Financial Service Office (“SFSO”), Shanghai Municipal Commission of Commerce (“Shanghai CoC”), and Shanghai Municipal Administration for Industry & Commerce (“Shanghai AIC”) — jointly announced on January 11, 2011, the Implementation Measures on the Pilot Program for Development of Foreign-invested Equity Investment Enterprises in Shanghai.

The Pilot Measures provide helpful guidance for the formation and operation of foreign-invested RMB funds. Importantly, the Pilot Measures also establish a special program (the “Pilot Program”) offering the potential for “national treatment” (i.e., the ability to invest without being subject to most foreign investment restrictions) for RMB funds managed by qualified foreign-invested fund managers that draw their limited partners solely from the ranks of domestic investors. However, such treatment remains controversial among regulators, and preliminary indications suggest that it may not be extended to certain areas such as real estate. More broadly, the Pilot Measures establish a coordinated inter-agency approval process for the establishment of RMB partnership funds and fund managers within the Shanghai municipality. It is expected that this coordinated approval process may begin to ease the limits on foreign exchange conversion that have bedeviled foreign investors in early RMB partnership fund cases.

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