China’s Wealthy Investors Hit New Roadblocks
China’s wealthy investors are encountering new challenges as authorities intensify scrutiny on a key cross-border investment mechanism. The Qualified Domestic Limited Partnership (QDLP) program, which allows high-net-worth individuals and institutions to invest in offshore markets, is facing tighter checks. These checks particularly target investments in offshore local government financing vehicles (LGFVs) and the sources of the funds, as local governments seek to ensure proper taxation.

Stricter Checks on Offshore Investment Mechanism
Shanghai, the first city to establish a QDLP in 2012, has seen nearly $10 billion in allocations through this mechanism. However, the increased scrutiny is causing delays, with reviews that used to take two weeks now stretching to two months. This comes at a time when demand for offshore investments is growing, as returns from domestic equities and bonds remain under pressure.

Demand for Offshore Investments vs. Regulatory Scrutiny
Despite these challenges, some asset managers remain eager to tap into the demand for offshore investments, although new investment quotas are being strictly controlled. The situation highlights the ongoing tension between investor demand for diversification and the government’s efforts to manage risk and ensure tax compliance.