Written by Michael Wu and Judy Deng
Since 2007 there have been a number of circulars (i.e., ordinances issued by industrial regulators) and regulations pertaining to whether Chinese insurance companies are permitted to invest their assets in offshore (i.e., outside of China) private equity. The following summarizes the relevant laws pertaining to this issue.
- In 2007, the China Insurance Regulatory Commission (“CIRC”), jointly with China’s central bank (“People’s Bank of China”) and the State Administration of Foreign Exchange (“SAFE”), issued a circular to permit Chinese insurance companies to make certain types of offshore investments. Specifically, the circular stated that Chinese insurance companies were permitted to invest in offshore capital markets products, fixed income products, equity investments and public companies. Although the circular permitted offshore “equity investments,” which under applicable Chinese law includes private equity investments, so far there have not been any publicly reported investments by Chinese insurance companies in offshore private equity in reliance on the circular.
- In August of 2010, the CIRC issued a circular to clarify certain investment policies applicable to insurance assets (“2010 Insurance Policies”). The 2010 Insurance Policies explicitly permit Chinese insurance companies to invest in offshore publicly issued bonds, investment funds and publicly traded stock; however, investment in offshore private equity was not explicitly listed as a permitted investment. Accordingly, after the 2010 Insurance Policies were issued, it was not clear whether Chinese insurance companies could invest in offshore private equity.
- In September of 2010, the CIRC issued a circular permitting Chinese insurance companies to invest in private companies and private equity located in China. This circular suggests that Chinese insurance companies are not permitted to invest in offshore private equity. Please refer to the blog titled China Permits Insurance Companies to Invest in Private Equity for additional information regarding the 2010 circular.
- In addition, there is no consensus regarding whether a Qualified Domestic Institutional Investor (“QDII”) may make offshore private equity investments under the QDII regulations. Under the QDII regulations, a QDII may apply for a quota to convert its RMB into foreign currency for purposes of making offshore investments. The QDII regulations enable Chinese investors to participate in offshore capital markets by investing in the products offered by QDIIs. The investment scope of QDIIs is strictly limited to banking products, bonds, public securities traded on specified stock exchanges, structured products and futures.
Unfortunately, the circulars and regulations above do not provide clear guidance regarding whether Chinese insurance companies may invest in offshore private equity. Accordingly, non-Chinese private equity fund managers should contact us before accepting any investment from Chinese insurance companies to determine the risks of such investment and the extent to which such investment is permitted under applicable law in China.