CHINA Law and Practice Contributed by: James Hu, Yingjie Kang, Huihui Li, Sherry Xu, Bivio Yu and Lisa Zhao, Fangda Partners
Lock-Up Period The Old Measures mandated a lock-up period of three years for strategic investments. The New Measures reduce this period to 12 months. Investment Methods Previously, the Old Measures allowed strategic invest - ments only through private placements or transfers by agreement. The New Measures introduce additional methods, including competitive bidding, subscription The Old Measures required a minimum shareholding ratio of 10% for strategic investments. The New Meas - ures remove this requirement for private placements, while reducing the threshold to 5% for investments made through agreement transfers or tender offers. Non-strategic foreign investors may also invest via QFII (Qualified Foreign Institutional Investor) status; the thresholds for QFII qualifications were lowered in November 2020 to encourage further foreign invest - ment in the PRC. 5.3 Investment Funds of new shares, and tender offers. Shareholding Ratio Requirements Foreign investment funds investing in PRC-listed pub - lic companies are generally required to invest as a QFII and are accordingly subject to compliance with the QFII-related requirements to invest. The QFII require - ments also include post-investment obligations, such as the obligation to make certain information reports to the CSRC. Foreign investment funds investing in non-listed PRC companies are not subject to the QFII requirements. However, if the fund establishes a domestic fund in the PRC or if a domestic fund has overseas inves - tors, it will be designated a “Qualified Foreign Limited Partner” (QFLP) and the establishment of the fund will have to be approved by the finance office of the local government in the fund’s domicile. The rules govern - ing QFLPs vary between cities and are not centrally regulated. It is worth noting that the Opinions also require in-depth implementation of pilot projects of domestic investment by QFLPs.
In general, foreign investors are not subject to PRC securities laws unless the foreign investor intends to invest in a PRC company listed on the securities exchanges of the PRC. If a foreign investor is a stra - tegic investor, the investor must meet qualification requirements for strategic foreign investors. These include thresholds on total assets and sound financial management capability. The strategic foreign inves - tor investing in a listed company through agreement transfers or tender offers must hold at least 5% of the company’s shares; for investments made through the private placement, there is no minimum shareholding requirement. All strategic foreign investors, regardless of the investment method, are subject to a 12-month lock-up period. It is noted that on 1 November 2024, several regulators in China jointly issued the Measures for the Adminis - tration of Strategic Investment in Listed Companies by Foreign Investors (the “New Measures”), which took effect on 2 December 2024. The New Measures, in comparison to the old ones, reduce thresholds and relax restrictions for foreign strategic investments. This aims to broaden access for foreign capital in China’s securities market, attract greater foreign investment, and promote long-term, value-oriented participation by foreign investors. The changes introduced are as follows. Scope of Foreign Investors The old rules restricted eligible foreign investors to legal entities and organisations. In contrast, the New Measures expand eligibility to include foreign natural persons, enterprises, and other types of organisations. Asset Thresholds Under the Old Measures, foreign investors needed a minimum of USD100 million in total overseas actu - al assets or USD500 million in total overseas actu - al assets under management. The New Measures reduce this threshold to USD50 million in total actual assets or USD300 million in total actual assets under management. However, for foreign investors aiming to become controlling shareholders of a listed company, the requirements of USD100 million or USD500 million remain unchanged.
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