CHINA Trends and Developments Contributed by: Ping Zhang, Xining Dai and Moxi Zhang, Zhong Lun Law Firm
against investment fund managers in the past year. Consequently, demand for the compliance of domestic investment funds has grown dra - matically. However, challenges come hand in hand with opportunities. Currently, investment valuations in China have been rapidly adjusted to more reasonable levels, significantly enhancing the investment value of funds. Additionally, policies for attracting foreign capital into China have become significantly more relaxed compared to previous years. Impact of Key New Regulations in 2024 The nationwide surge of QFLP funds QFLP funds were a prominent topic among the vast majority of leading fund managers in 2024. On the one hand, a shortage of domestic ren - minbi capital has created a demand among dual- currency fund managers to accept US dollar capital into renminbi funds. On the other hand, local governments across China are actively pro - moting and encouraging foreign investments in renminbi funds. The QFLP programme, introduced by the gov - ernment as a pilot policy to facilitate foreign capital investment in renminbi funds through simplified currency conversion, is currently only limited to regions such as the Hainan Free Trade Zone, Beijing, Shanghai and Jiangsu Province. However, owing to the strong demand for for - eign capital in various regions, the authors have observed that certain areas have significantly lowered the thresholds for QFLP qualification, making it an excellent opportunity for foreign investors to secure substantial currency con - version quotas. The QFLP policy allows foreign investors to apply for large-scale conversion quotas for
investment in renminbi funds, with the flexibil - ity to contribute capital in instalments over an extended period (as stipulated in the fund agree - ment) rather than making a lump-sum payment. Capital brought in through QFLP must ultimately be invested in equity projects, including private equity (PE), venture capital (VC) or funds of funds (FOFs) targeting the above categories. Notably, the FOF investment model is permitted only in a smaller number of regions. Impact of the 2024 Company Law on Equity Funds In 2023, the Standing Committee of the National People’s Congress passed the revised Company Law, representing the most substantial amend - ment since the 2005 revision. The revision, which came into effect in July 2024, encompasses cor - porate capital systems, governance structures, shareholder rights protection, and the rights and responsibilities of executives. This revision is expected to have a profound impact on corpo - rate operations and governance in China. The new Company Law directly or indirectly affects many traditional practices by PE funds as financial investors. Key changes include the following. Registered capital and shareholder rights This entails introduction of a mechanism requir - ing newly contributed registered capital of lim - ited liability companies to be fully paid within five years, along with a corresponding shareholder forfeiture mechanism. This reform is expected to eliminate the proliferation of “shell companies” in China that have been artificially packaged for financial purposes. Enhanced board responsibilities The responsibilities of company directors are sig - nificantly heightened. New obligations include:
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