New Opportunities for Investment in China

published on 28 August 2020 | reading time approx. 2 Minutes

Due to the outbreak of the covid-19 Epidemic, the implementation of the Foreign Investment Law (effective on 1 January 2020) along with its implementation regulations and supporting rules had to be slowed down in the first quarter 2020. As the epidemic is coming under control, the Chinese government is proceeding with further opening-up with a series of measures to facilitate foreign investment, encourage foreign M&As and stimulate foreign investment growth.

On 18 June 2020, the Chinese Ministry of Commerce (MOFCOM) issued the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies (Revised Draft for Comment) to seek public comments by 19 July 2020, which aims to attract foreign investors to enter the A-share market for extensive implementation of the Foreign Investment Law. The Revised Draft mainly lowers the investment threshold in the following aspects:

• For foreign investors as non-controlling shareholders, the threshold for the total assets is set to not less than USD 50 million or the total assets under management to not less than USD 300 million. For foreign investors as controlling shareholders, the total assets should be no less than USD 100 million or the total assets under management should be no less than USD 500 million;
• Qualified foreign natural persons are allowed to make strategic investments;
• The lock-up period for foreign investors are shortened from 3 years to 12 months;
• More investment types are allowed, including tender offer investment, agreement investment and private placement investment;
• The restriction on the foreign investor's shareholding ratio of not less than 10 per cent is cancelled. For tender offer investment and agreement investment, the shareholding ratio of foreign investors is set to no less than 5 percent;
• Foreign investors are allowed to make strategic investments in small and medium-sized companies listed in National Equities Exchange and Quotation (NEEQ).
• Terms for cross-border share swaps are loosened.
• Foreign investors are allowed to use their holding shares or new additionally issued shares of overseas non-listed companies for payment.

The above-mentioned Revised Draft was issued by MOFCOM in collaboration with the State-owned Assets Supervision and Administration Commission (SASAC), the State Taxation Administration (STA), the China Securities Regulatory Commission (CSRC), the State Administration for Market Regulation (SAMR) and the State Administration of Foreign Exchange (SAFE). Therefore, it is convincing that the feasibility in practice has already been fully examined by considering various aspects such as taxation, enterprise registration, foreign exchange management, overseas investment management and financial institution management etc.

The MOFCOM issued the new Negative List for Foreign Investment Access (2020 Edition) on 23 June 2020, which will be implemented from 23 July 2020. It is noteworthy that the new list removes access restrictions to the financial sector and further loosens the restrictions on the proportion of foreign shares in manufacturing and agriculture industries. Furthermore, it is stipulated by the above-mentioned Revised Draft for Comment that foreign investors are not allowed to invest in the areas mentioned in the Negative List.

The Chinese economy is now recovering slowly and steadily from covid-19. Even though the pace of globalization might be slackened due to the epidemic, the current initiatives of Chinese Government demonstrate its commitment to economic globalization and indicate that China will continue to open up to attract more foreign investments. Good news such as lowering restrictions on foreign investment and promoting investment liberalization will undoubtedly present an favorable opportunity for foreign investors who have confidence in China's economic development in the long run.