Hainan QFLP Pilot – Domestic Equity Investment by Qualified Foreign Limited Partners

Governing Documents:

Hainan Interim Measures for Domestic Equity Investment by Qualified Foreign Limited Partners (2020)

Hainan QFLP Balance Management Pilot Measures (2023)

Issuing Departments:

Hainan Provincial Local Financial Supervision Administration

State Administration of Foreign Exchange (Hainan Branch)

Hainan Provincial Market Supervision Administration

China Securities Regulatory Commission (Hainan Bureau)

Last Updated: January 2023
Status: In Effect

Qualified Foreign Limited Partner (QFLP): Domestic Equity Investment Pilot in Hainan Free Trade Port

Summary

Hainan allows qualified foreign investors to bring foreign capital into China, convert it to RMB, and invest directly in domestic private equity, venture capital, and non-public equity transactions.
The policy supports Hainan’s goal of building a globally open investment environment and strengthening inbound cross-border capital channels.

Hainan implements two major regulatory frameworks:

Interim QFLP Measures (2020) — establishes basic rules for QFLP entities, investment scope, and registration procedures.

QFLP Balance Management Pilot (2023) — introduced in Yangpu, providing more flexible quota management and simplified FX procedures.

Together, they form one of China’s most liberalized QFLP regimes.

What This Policy Does

The QFLP pilot:

Allows foreign capital to be converted into RMB for equity investment inside China

Enables foreign LPs to participate in non-public equity investments, including private equity funds, non-public share placements, and convertible instruments

Allows foreign fund managers to establish QFLP management companies or appoint domestic PE/VC managers

Provides a regulated channel for profits, dividends, and exit proceeds to be remitted overseas

Introduces a balance-management quota system allowing multiple funds under one manager to share the same QFLP quota

Who Can Use It

1. QFLP Management Companies (Fund Managers)

Foreign-invested equity investment managers that are:

Registered in Hainan

Approved through the joint-review mechanism

Registered with the Asset Management Association of China (AMAC) as private fund managers

2. QFLP Funds

Foreign-invested equity investment enterprises or funds that:

Are registered in Hainan

Raise capital from foreign investors, domestic investors, or both

Invest in domestic non-public equity

3. Foreign Investors (Qualified Foreign Limited Partners)

Eligible participants include:

Foreign institutions

Multinational companies

Investment funds

Foreign high-net-worth individuals (where permitted)

Foreign LPs must comply with FX, AML, and investor suitability requirements.

Key Clauses & Requirements

1. Investment Scope

QFLP funds may invest in:

Equity of non-listed domestic companies

Non-publicly traded shares of listed companies (private placements, block trades, agreement transfers)

Convertible preferred shares, convertible bonds, and similar instruments

Other areas permitted by Chinese law and by CSRC/AMAC

Not Permitted

Sectors prohibited to foreign investment

Secondary market trading (stocks, corporate bonds), except where special approval applies

Real estate not for self-use

Futures and other derivatives

Lending or guarantees to non-portfolio companies

Any activity prohibited by national law

2. Establishment Requirements

For QFLP Management Companies:

No minimum registered capital requirement

Must have at least two senior managers with:

5+ years PE/VC experience

2+ years in senior positions

Clean compliance record

Must register with AMAC as a private fund manager

May raise RMB funds from domestic investors

For QFLP Funds:

Must obtain a recommendation letter from a Hainan authority or industrial park

Must register at the Hainan Market Supervision Administration

Must complete FX registration

Must complete fund filing with AMAC

3. Balance Management System (2023 Reform)

The QFLP quota is assigned at the management-company level, not per fund.

This means:

Multiple QFLP funds can share one unified quota

Managers may reallocate quota among different funds

Net foreign capital inflows across all funds cannot exceed the approved quota

Exits and returns automatically replenish the remaining quota (“balance system”)

This significantly increases flexibility for multi-fund strategies.

4. Foreign Exchange & Capital Conversion

QFLP funds open a QFLP Capital Account at the custodian bank

Funds may convert foreign currency to RMB directly for domestic investment

Banks process cross-border payments based on project documents and compliance checks

Profits, dividends, and exit proceeds may be remitted overseas upon tax compliance

No need for “settlement pending payment accounts” or reinvestment FX registrations

Practical Impact

For Global Investors

Direct access to China’s onshore private equity and venture capital markets

Ability to deploy foreign capital into large-scale RMB transactions

Lower regulatory barriers than traditional inbound investment channels

Faster profit repatriation and simpler FX handling

For Fund Managers

Establishment of foreign-managed PE/VC firms in Hainan

Ability to manage both RMB and foreign-currency funds

Flexible multi-fund portfolio using the balance quota system

Access to Hainan FTP incentives and reduced compliance friction

For Hainan Free Trade Port

Attracts global fund managers and institutional capital

Supports Yangpu’s pilot role in two-way capital opening

Builds a complete inbound/outbound investment ecosystem (QFLP + QDLP + FT Accounts)

Lead Department

Hainan Provincial Local Financial Supervision Administration
Office: 9th Floor, Hainan Provincial Government Building, Office 947
Email: jgec_sjrj@hainan.gov.cn
Tel: 0898-65341609
Responsible Office: Local Financial Management Division II

Frequently Asked Questions (FAQ)

1. Can a fund manager establish only a QFLP fund but not a QFLP management company?

Yes. Domestic private fund managers registered with AMAC may establish or manage a QFLP fund.

2. Can a QFLP management company also manage normal private funds?

Yes. QFLP managers may raise RMB private equity funds from domestic investors.

3. What preferential tax policies apply?

QFLP entities are listed as “encouraged industry” enterprises in Hainan FTP and may qualify for:

15% corporate income tax (where conditions are met)

Additional local incentives from industrial parks

4. What sectors can QFLP funds not invest in?

Industries on the national negative list

Secondary market securities (unless specially approved)

Non-self-use real estate

Derivatives

Anything prohibited under national regulations

5. Where does the balance-management pilot currently apply?

The quota balance system is implemented in Yangpu Economic Development Zone.