Guangdong, Macau Team Up on Renminbi Infrastructure Investments
Cross-border fund-raising using the renminbi has taken a major step forward with the creation of the Guangdong-Macau Cooperative Development Fund ¨C an investment vehicle set up to promote domestic infrastructure development and enhance the role of the nation's currency on the global stage. The fund was set up in June of 2018 with an initial investment of just over 20 billion yuan. It makes use of the Renminbi Qualified Foreign Limited Partnership (RQFLP) program to channel offshore renminbi back into the mainland，a key part of China's effort to internationalize the currency. While there have been similar moves to set up renminbi foreign limited partnerships in Shenzhen and Shanghai this is the most ambitious to date.
In April 2015，the Guangdong provincial government issued its Notice on Implementing the 2015 Key Tasks of the Guangdong-Macau Cooperation Framework Agreement. A major objective was to promote the development of cross-border renminbi business between Guangdong and Macau and boost cooperation in the financial sector. Senior officials of Guangdong and Macau reached an accord on implementing the framework agreement，and they turned to Guangdong Hengjian Investment Holding Co. Ltd，a wholly-owned unit under the Guangdong provincial government investment platform，which teamed up with the Monetary Authority of Macau and the Guangdong Nanyue Group to make use of the RQFLP format to make infrastructure investments.
This led to the creation of the Guangdong-Macau Cooperative Development Fund，which introduced funds from Macau to participate in basic infrastructure projects in Guangdong province，including the construction of a free trade zone，to serve the real economy and help upgrade industry. The innovative formula is also aimed at promoting financial integration and encourage two-way cross-border flows of renminbi.
Renminbi funds raised offshore under the RQFLP program will be used directly in various domestic private equity investments. The rules are generally the same as those of the existing Qualified Foreign Limited Partnership program，though the RQFLP formula eliminates the need for pre-approvals of settlement amounts and multiple purchase and payment steps related to foreign exchange use. These include capital reduction，profit distribution and eventual liquidation of the investment fund. RQFLP also reduces the difficulties of valuation accounting，avoiding risks from exchange rate fluctuations，and avoids the impact on the domestic foreign exchange rate from large purchases or sales of foreign exchange. As the RQFLP entity is funded in local currency，it does not require a settlement account to make payments. It enjoys significant advantages in terms of opening bank accounts and transferring funds，though there are still a number of drawbacks to the program，which will be discussed later in this article.
Investment Fund Structure
The Guangdong-Macau Cooperative Development Fund does not make use of a wholly owned foreign enterprise as the manager and general partner ¨C a practice often used by offshore fund managers when making foreign currency investments in China. Instead，the general partner is the Guangdong-Macau Cooperation Development Fund Management Co.，set up by Guangdong Hengjian Investment Holding Co. Ltd and Guangdong Nanyue Group. The Macau government entrusted ICBC Macau Investment Co. Ltd as an offshore limited partner to set up a foreign-invested limited partnership in the Hengqin Free Trade Zone in Zhuhai City. The amount of the first phase reached 20.01 billion yuan，all of which was funded in cash. The total subscribed capital contribution of the fund is expected to be raised to 100 billion yuan eventually.
The Guangdong-Macau Cooperative Development Fund Management Company，as the initiator of the fund and general partner，invested 10 million yuan. ICBC Macau Investment Co. Ltd. subscribed for 20 billion yuan as the limited partnership fund shares through the RQFLP program. The fund has a 12-year operating period，after which it can be extended or dissolved.
The fund aims to invest in safe，effective，standardized and reliable projects，mainly infrastructure，including the Hengqin Free Trade Zone in Zhuhai. The Guangdong-Macau Fund entrusts a large-scale national commercial bank as the fund’s depository agent. A requirement is that the agent has overseas renminbi clearing qualifications and experience recognized by both Guangdong and Macau.
While the framework agreement was reached in 2015 ¨C it took three more years to finalize the fund. This was due to the newness of the structure and the complicated procedures for gaining regulatory approval and putting the funds in place.
Shenzhen already has a comparatively mature QFLP policy so the fund borrowed Shenzhen’s existing QFLP practices. Issues to be considered included the qualifications of overseas investors，the organization of the fund，the regulatory approval path，bank account creation and money transfer formalities，fund filings，fund depository arrangement，reinvestment