CHINA Trends and Developments Contributed by: Richard Guo, Zhen Chen, Zhiyi Ren and Sherman Deng, Fangda Partners
Department of the Treasury if the fund engages with moderate-risk technologies. The rule significantly affects private equity, venture capital, and other fund investments. For US investors, contributing to a non-US fund is regulated if they know the fund may invest in restricted high-tech sectors like semiconductors, AI, or quantum computing tied to China. However, US investors can avoid restrictions by limiting their total investment in the fund to USD2 million or securing agreements that their funding will not support restricted transactions. While this offers US investors a way to comply, it may limit funds’ abil - ity to raise money for these technologies, aligning with the rule’s goals. Both US and non-US sponsors dealing in these tech - nologies should establish procedures to ensure they follow the rule, as there is no formal review process for compliance. A strong compliance programme and thorough due diligence can help guard against pen - alties if a violation occurs, especially since the rule broadly assumes awareness of potential violations. As the rule is new, companies may need to adjust their policies as and when practical challenges emerge. Data Compliance and Cybersecurity China’s data protection landscape has undergone sig - nificant transformation in recent times, with a robust legal framework anchored by three cornerstone laws: the Cybersecurity Law, the Data Security Law, and the Personal Information Protection Law (PIPL). In 2025, these laws have been further strengthened by the Regulations on Network Data Security Management and the Personal Information Protection Compliance Audit Measures. These developments may have impli - cations for funds operating in China, particularly in managing personal and sensitive financial data. In addition to the general data protection compli - ance requirements, key concerns for funds remain in cross-border data transfer (CBDT) and sensitive data processing. Funds with international operations face stringent CBDT requirements under the PIPL. Depending on the amount and scope of data trans - ferred abroad, data exporters may need to execute standard contracts with overseas recipients, file with regulators, or obtain prior approval for transfers.
To deal with the compliance risks related to important data (or even state secrets or other data related to national security), funds must establish data classifi - cation systems to identify sensitive data (eg, financial or client information, especially in sensitive sectors) and implement tailored security measures. For exam - ple, sensitive data must be restricted to a “need-to- know” basis for a limited number of employees and not shared with parties outside China. Best practice involves adding protective clauses to NDAs, ensuring that no restricted or sensitive data is shared. GP Capital Markets On 6 May 2025, the People’s Bank of China and the CSRC jointly issued the Notice on Supporting the Issu - ance of Science-and-Technology Innovation Bonds, introducing a long-duration debt-plus-equity fund - ing tool for equity investment institutions. Require - ments on issuer qualifications, team stability, exit track records and use-of-proceeds are specified, and at least 50% of proceeds must be invested (directly or via funds) in hi-tech manufacturing and services, strategic emerging industries and IP-intensive sec - tors. Replacement of self-funded capital deployed within the prior year is permitted. Properly executed, these bonds can lower blended funding costs, smooth cash-flow timing in “invest-then-raise” situations, and – combined with continuation and secondary solu - tions – help close the loop across fundraising, invest - ment, portfolio management and exit. ESG and Green Funds ESG has moved from optional to expected. Policy is steering capital toward renewables and the circu - lar economy, and while social and governance met - rics are still relatively principle-based, regulators are steadily translating them into concrete disclosure rules. In market practice, ESG has been expanded from image-building to decision-making: investment committees set sector-specific KPIs and post-invest - ment improvement plans that tie directly to value crea - tion – pharma companies are evaluated on product and data safety systems; manufacturing companies on energy efficiency and safe operations; and tech - nology companies on AI ethics and data governance. At exit, companies with credible ESG programmes tend to travel more smoothly through due diligence,
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