CHINA Law and Practice Contributed by: Zhen Chen, Candy Tang, Flora Qian and Yan Zhao, Fangda Partners
3.10 AI and Use of Data China has introduced various regulations and guide - lines on artificial intelligence (AI) that could impact its use for investment purposes or for operational/com - pliance purposes. However, if AI services are devel - oped or used solely for internal daily operations with - out public exposure, the compliance requirements are significantly reduced. Currently, there are no specific requirements or limitations imposed by the relevant financial regulatory authorities. Please note that pro - viding access to AI-based trading tools or API con - nections for investors to trade on their own without a proper investment licence could constitute illegal trading and trigger liabilities for a fund. Regarding use of data, if the funds need to transfer the data abroad (eg, if a fund has an investment committee with members based outside of China), the sharing of data, especially if the funds invest in sensitive indus - tries such as AI and semiconductors, may result in cross-border data transfer (CBDT) of important data, and the CBDT of important data requires governmen - tal approval. Therefore, it is vital for funds to identify, desensitise and, to the extent possible, avoid collect - ing such data. In a nutshell, important data means data that concerns China’s national security interest but is not formally classified as state secrets. Although there are some national standards and sector-based rules, there is no comprehensive rule to determine for sure whether a data field in a particular scenario would fall into important data. Based on current rules and observed law enforcement practice, however, certain categories of data are very likely to be treated as such. These include R&D data relating to advanced semi - conductor chips, precise geolocation data gathered by electric vehicles, and datasets containing personal information on more than ten million individuals. 3.11 Anticipated Changes for Fund Managers Following the promulgation of several regulations in 2023 with respect to the registration of fund manag - ers, the filing of private funds and regulations on pri - vate funds, it is anticipated that AMAC will release interpretations, Q&As and guidelines regarding the regulations to strengthen the systematic regulation of the private fund sector in China. In addition, AMAC is building upgraded IT systems for funds and fund managers’ registrations, filings and reporting, accom -
panied by enhanced data-sharing and parallel censor - ship with the CSRC.
4. Investors 4.1 Types of Investors in Alternative Funds Investors for private funds in the PRC need to satisfy the requirements of QIs – ie, an investor must: • be capable of identifying and tolerating the risks inherent in the proposed investment; • invest no less than RMB1 million in a single private fund; and • satisfy one of the following conditions: (a) if an entity, have net assets of no less than RMB10 million; or (b) if a natural person, have financial assets of no less than RMB3 million or an average annual personal income of not less than RMB500,000 in the past three years. Notwithstanding the above, there are several types of Deemed QIs: • social security funds, enterprise annuities and other pension funds, charitable funds and other social non-profit funds; • duly established investment schemes that have been filed with AMAC; • fund managers and their practitioners who invest in the fund under their own management; • Qualified Foreign Institutional Investors (QFIIs), or RMB Qualified Foreign Institutional Investor (RQFIIs); and • such other investors (eg, asset management prod - ucts issued by the institutions which are super - vised by the financial regulatory departments under the State Council (eg, assembled funds trust plan)) as prescribed by the CSRC. The commonly seen investors for private funds in the PRC include: • institutional investors such as insurance compa - nies, governmental guidance funds, state-owned enterprises and listed companies; and • high net worth individuals.
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