CHINA Law and Practice Contributed by: Catherine Chen and Shaun Gao, Zhong Lun Law Firm
AMAC regulations The Asset Management Association of China (AMAC) mandates compulsory registration and compliance for all venture capital funds. Require - ments encompass detailed information submis - sion, ongoing reporting obligations and periodic regulatory reviews. This framework standardises industry practices while implementing robust monitoring mechanisms for investor protection. Foreign exchange regulations The State Administration of Foreign Exchange (SAFE) oversees a specialised framework for funds involving foreign LPs or cross-border investments. The system manages capital con - tribution restrictions, investment return repatria - tion and currency conversion protocols, reflect - ing China’s balanced approach to international capital flows while maintaining careful economic oversight. 2.4 Particularities Evolving Fund Structures in Chinese Venture Capital Government-backed venture capital funds Government guidance funds (GGFs) serve as strategic drivers of national innovation, focusing on critical sectors such as semiconductors, AI and clean energy. These funds align with nation - al initiatives such as Made in China 2025 and the Dual Circulation Strategy, significantly influenc - ing private venture capital investment patterns. Impact funds and ESG integration The market shows increasing adoption of ESG principles and impact investing, particularly in green technology, healthcare innovation and educational technology. Government support through financial subsidies and regulatory incen - tives reinforces this trend, emphasising renew - able energy and sustainable innovation.
Funds-of-funds (FoFs) and continuation funds FoFs, predominantly backed by government guidance funds, provide strategic diversifica - tion across multiple venture capital investments. Continuation funds offer innovative life cycle management solutions, extending investment horizons and maximizing portfolio returns. This structure supports a growing secondary market for venture capital fund interests. Foreign participation and extended holding periods International engagement operates within a controlled framework through Qualified For - eign Limited Partnership (QFLP) programmes. The ecosystem addresses extended holding periods through innovative approaches, includ - ing extended fund durations (12–15 years) and strategic co-investment structures. 3. Investments in Venture Capital Portfolio Companies 3.1 Due Diligence Corporate Structure and Ownership Due diligence begins with thorough shareholder verification, examining registered and beneficial ownership structures, undisclosed equity agree - ments and preference rights. Corporate govern - ance review encompasses incorporation docu - ments, subsidiary structures and governance mechanisms. Regulatory and Permits The process validates business licences, sector- specific compliance and alignment with foreign
investment regulations. Contractual Framework
Critical contract analysis covers material agree - ments, employment arrangements and financial
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