First Eastern aims to pioneer QFII opportunity

Buoyed by the news that China plans to raise the limits on inbound portfolio investments and shorten their lockup period, foreign private equity (PE) firms are now keen to increase their quota and invest their yuan-dominated private equity funds.

The Hong Kong-based First Eastern Investment Group is aiming to be the first use the new Qualified Foreign Institutional Investors (QFII) legislation to invest in its Shanghai-based subsidiary. The company’s chairman, Victor Chu, outlines its plans in an exclusive interview with China Daily reporter Bi Xiaoning at the “Summer Davos” in Dalian.　

　Q: Finding enough qualified domestic limited partners (LP) has long been the problem for private equity firms looking to raise capital. In your opinion, is it as challenging for foreign companies to raise yuan-dominated funds?

　A: Yes. The pool of domestic LP is relatively limited. Currently, there are only a few major institutions and some regional seed funds that are actively available for investment. I have confidence that there will be more local investors willing to invest in PE in the next five to 10 years.

　There are still a few technical issues that we need to resolve with the relevant authorities. These include how a GP (general partner), such as ourselves, will be able to channel our capital from outside China into the Chinese mainland, as part of the local currency of PE funds. So we are exploring different ideas, including the possibilities of using QFII to invest in PE.

　The nature of PE is to provide long-term capital and they are not “hot” money. The government should be encouraged to support its use.　

　Q: At the “Summer Davos”, one of the private sessions you attended was “the future of financial services in China”. Would you like to share some of the talking points with China Daily readers?

　A: I think there are two or three areas that are extremely exciting right now, particularly, in the context of last year’s global financial crisis. With the rest of the world going through a consolidation stage, China is heading for a new liberalization.

　There are a few areas I’d like to highlight. One is the formal endorsement by the central government empowering Shanghai to become the financial center by 2020. There are a number of implications here, because that also sets the timetable for the free convertibility of the renminbi. It also implies that Shanghai will be liberalizing its capital market and, hopefully, its debt market in a much more innovative way.

　We have already seen Shanghai announce plans to attract international PE firms to set up subsidiaries in Pudong. We have heard encouragement from the Chinese leadership for Shanghai becoming an international board, with the intention of attracting more multinational companies to list on the Shanghai market. All of this is very exciting.

　Q: What’s your expectation for the third “Summer Davos” in Dalian this year?

　A: It’s the second time we’ve come to Dalian. We are looking forward to the next few days with great excitement. Dalian has prepared for this summit with great vigor.

　Of course, the world has changed a great deal, since we last met in Tianjin a year ago. There are a lot of topics to discuss and these all need to be aired. Hopefully, we can help the market find some new ideas and some new solutions.

Video: Li Qiao

Story: Bi Xiaoning