On the evening of November 1 2024, the Ministry of Commerce, China Securities Regulatory Commission (CSRC), State-owned Assets Supervision and Administration Commission (SASAC), State Taxation Administration, Market Regulation Administration, and State Administration of Foreign Exchange jointly issued a revised set of guidelines titled "Measures for the Administration of Strategic Investments by Foreign Investors in Listed Companies" (hereinafter referred to as the "Measures") which will take effect on December 2, 2024. This revision aims to enhance the facilitation and oversight of foreign investments in China's capital markets.
Background and Significance
The revisions stem from directives outlined in the 20th National Congress report, which emphasizes a high-level opening-up of the economy, promoting a domestic-international "dual circulation" development pattern, and enhancing the functionality of capital markets to increase direct financing. The Third Plenary Session of the 20th Central Committee held in July this year called for a systematic expansion of foreign investment across various markets, including capital and services, to improve the ease of foreign equity and venture investments in China.
In recent years, China’s ongoing economic growth and deepening reforms have increased the demand for attracting high-quality foreign investments, particularly as the scale of the securities market expands. With significant adjustments to laws governing foreign investment, securities, and companies, there is a pressing need to update the relevant regulations. The revised Measures aim to direct more quality foreign capital into listed companies, enhancing foreign capital utilization while supporting industrial upgrades and the stable development of capital markets. The regulatory framework is becoming more robust to effectively manage risks. Throughout the revision process, public feedback was solicited, and suggestions from various stakeholders were carefully considered, leading to the publication of the updated Measures, which received general support.
Key Changes to the Measures
Inclusion of Foreign Individuals: The revised Measures now allow foreign individuals, in addition to corporations, to engage in strategic investments in Chinese listed companies, aligning with the Foreign Investment Law.
Relaxation of Asset Requirements: The asset thresholds for foreign investors have been adjusted. Previously, the requirement was at least USD 100 million in total tangible assets or USD 500 million in managed tangible assets. The new Measures reduce this to USD 50 million in total tangible assets or USD 300 million in managed tangible assets for non-controlling shareholders, while maintaining the previous threshold for those seeking to become controlling shareholders.
Introduction of Tender Offers: The revised Measures now permit foreign investors to make strategic investments via tender offers, in addition to the previously allowed methods of private placements and negotiated transfers.
Permission of Cross-Border Share Exchanges: The revised Measures allow for the use of shares from non-listed foreign companies as payment in strategic investments made through private placements or tender offers, facilitating cross-border transactions and attracting foreign investors to utilize various investment methods.
Reduction of Shareholding Ratio and Lock-Up Periods: Previously, foreign investors were required to initially hold at least 10% of the shares, with a three-year lock-up period. The new Measures eliminate the shareholding requirement for private placements and reduce the minimum for negotiated transfers and tender offers from 10% to 5%. Additionally, the lock-up period is shortened from three years to a minimum of 12 months, while still ensuring the long-term investment nature of strategic investments. If other regulations impose longer lock-up periods, those must be adhered to.
Strengthened Oversight and Risk Management
The revised Measures enhance regulatory oversight and risk management by establishing a collaborative framework involving market self-regulation, government oversight, and social supervision. Key provisions include:
Increased Responsibility for Intermediaries: Intermediary institutions are required to provide compliance opinions on strategic investments. Failure to do so could result in penalties.
Mandatory Disclosure: Foreign investors must disclose compliance with the Measures when fulfilling their information obligations, including making commitments to adhere to regulations.
Alignment with Security and anti-trust Reviews: Strategic investments that may impact national security will be subject to security reviews, and those meeting the criteria for concentration of operators will require antitrust notifications.
Addition of Administrative Penalty: The revised Measures include the addition of administrative penalty provisions from the Ministry of Commerce. In addition to the supervisory and enforcement responsibilities of other relevant departments, the Ministry of Commerce now has the authority to impose administrative penalties for actions that violate the provisions of the Measures.
Implications for Foreign Investors
Foreign investors are now able to engage in strategic investments with greater ease and flexibility.
No Approval Process: Foreign investors are no longer required to obtain approval from the Ministry of Commerce for strategic investments in listed companies, aligning with the Foreign Investment Law.
Reporting Obligations: Listed companies must adhere to information reporting requirements under the Foreign Investment Law and the Regulations on the Reporting of Foreign Investment Information. This ensures that they disclose and submit investment information truthfully, accurately, and completely.
National Equities Exchange and Quotations (NEEQ): Foreign investors participating in the NEEQ can also follow these revised Measures, further expanding their investment opportunities.
Existing Investment Mechanisms: Investment through established mechanisms such as QFII/RQFII and various Stock Connect programs remains unaffected by the new Measures, allowing continuity in these channels.
Conclusion
In the last year or two, the China Securities Regulatory Commission has implemented various strategies to support capital market growth, including reducing stamp duties and restricting short selling. However, the A-share market remains largely off-limits to foreign investors due to the non-convertibility of the Yuan under the capital account. Currently, only qualified foreign institutional investors can access mainland shares through the QFII scheme, while overseas participants can trade via Stock Connect programs, which operate under a quota system.
Since the initial introduction of the Measures in 2005, foreign strategic investments have made a positive impact on the development of China’s capital markets, with over 600 strategic investments recorded. The revised Measures aim to enhance the appeal of China’s markets by streamlining regulations and lowering barriers for foreign investors. This is expected to attract more foreign capital, potentially encouraging local investors to increase their A-share holdings.
Overall, the revised Measures represent a significant step toward creating a more inviting environment for foreign investment in China’s capital markets, while also emphasizing the importance of regulatory compliance and risk management. By fostering a balanced approach to foreign strategic investments, China seeks to attract high-quality foreign capital, support its economic growth, and ensure the stability of its financial markets. The effectiveness of these Measures remains to be seen.
律师简介
Amanda Guo
Dacheng Shanghai Partner
amanda.guo@dentons.cn
Amanda Guo is a partner at Beijing Dacheng (Shanghai) Law Offices, serving as Deputy Secretary General of the Dacheng Shanghai Cross-Border Investment and Trade Professional Group and Director of the Dacheng China Region Belt and Road Construction Research Center. She specializes in cross-border investment and M&A, commercial law, and compliance, focusing on equity investment and financing, cross-border M&A, data protection, and regulatory compliance. With nearly 20 years of experience in international law firms, Amanda has extensive research and practical expertise in providing legal services to domestic and multinational companies.
Amanda and the projects she has worked on have been recognized in prestigious legal rankings, including IFLR 1000, ALB, The Legal 500, and the Business Law Journal.
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