The Management of Foreign Private Equity Funds Involves Foreign Investment and Foreign Exchange in the China (Shanghai) Pilot Free Trade Zone

Abstract

China (Shanghai) Pilot Free Trade Zone’s management model of post-establishment national treatment to foreign investors is providing replicable and propagable experiences for the comprehensive deepening reform of China. Foreign private equity funds involve foreign investment and foreign exchange management and other systems which could be a representative sample of reform. However, even after the removal of previous unnecessary regulations, the reform of the post-establishment national treatment access is not absolute equality and fully liberalized for developing a concurrent regulation and ex-post regulation framework. Specifically, there is a need to simplify procedures in the stage of establishment and use the same barriers to entry with domestic capital, adopt the “negative list” management model in the part of investment; gradually promote the liberalization of foreign exchange, and monitor whether the flow of funds is real compliance, and also, make a national security review of fund acquisitions.

Keywords:

• foreign exchange
• foreign investment
• foreign private equity funds
• China (Shanghai) Pilot Free Trade Zone

Notes

See “China eases approval process for foreign investment projects.” Retrieved from http://news.xinhuanet.com/english/china/2014-05/23/c_133355668.htm

See “China announces plans for pilot free trade zones.” Retrieved from http://news.xinhuanet.com/english/2015-04/20/c_134167136.htm.

See “Administrative Measures on the Establishment of Partnership Enterprises in China by Foreign Enterprises or Individuals” (Order No. 567 of the State Council of the People’s Republic of China). Retrieved from http://law.wkinfo.com.cn/legislation/detail/MTAwMDAwNzI4MjBfRW4%3D?searchId=f060d78c3c8b487786b88084becc5cc4&index=1&q=Administrative%20Measures%20on%20the%20Establishment%20of%20Partnership%20Enterprises%20in%20China%20by%20Foreign%20Enterprises%20or%20Individuals

See “Administrative Provisions on Registration of Foreign-funded Partnership Enterprises” (Decree of the State Administration for Industry and Commerce, No. 47 Promulgation Department: State Administration for Industry and Commerce). Retrieved from http://www.fdi.gov.cn/1800000121_39_3457_0_7.html

See “Guidance of Foreign Investment Industries” (Order of the National Development and Reform Commission and the Ministry of Commerce No. 22 Promulgation Department: Development and Reform Commission, Ministry of Commerce). Retrieved from http://www.fdi.gov.cn/1800000121_39_4830_0_7.html

Article 37 of Regulations on China (Shanghai) Pilot Free Trade Zone: “The Pilot FTZ shall establish a system for review of national security involving foreign investments. For foreign investments which fall under the scope of review of national security, the investors shall apply for review of national security; the relevant administrative authorities, industry associations, enterprises in the same industry, and upstream and downstream enterprises may propose recommendations for review of national security. The parties concerned shall cooperate in review of national security by providing the necessary materials and information and accepting the relevant enquiries.” See http://en.shftz.gov.cn/Government-affairs/Laws/General/319.shtml

Paragraph 1, Article 1 of Notice of the General Office of State Council on Promulgation of the Trial Measures on National Security Review for Foreign Investments in Pilot Free Trade Zones: “The scope of security review shall be: investments by foreign investors in the Pilot FTZs in military industry, military support and other areas which relate to national defense security, as well as surrounding areas of key, sensitive military facilities; investments by foreign investors in the Pilot FTZs in key agricultural products, key energies and resources, key infrastructure, key transportation services, key culture, key information technology products and services, key technologies, key equipment manufacturing etc., which relates to national security and obtains the actual controlling stake of the investee enterprises.” See http://law.wkinfo.com.cn/legislation/detail/MTAwMDQ5OTE0MzlfRW4%3D?searchId=f1091bf19d164daaa057932a1f18e8c9&index=1&q=Notice%20of%20the%20General%20Office%20of%20State%20Council%20on%20Promulgation%20of%20the%20Trial%20Measures%20on%20National%20Security%20Review%20for%20Foreign%20Investments%20in%20Pilot%20Free%20Trade%20Zones

Paragraph 2, Article 1 of Notice of the General Office of State Council on Promulgation of the Trial Measures on National Security Review for Foreign Investments in Pilot Free Trade Zones: “Investments by foreign investors in the Free Trade Zone include the following circumstances: (a) foreign investors making sole or joint investments with other investors in new projects or establishment of enterprises; (b) foreign investors obtaining equities or assets of existing enterprises through merger and acquisition; (c) foreign investors making investments through agreements on control, holding on behalf, trust, reinvestment, overseas transactions, leasing, subscription of convertible bonds, etc.” See http://law.wkinfo.com.cn/legislation/detail/MTAwMDQ5OTE0MzlfRW4%3D?searchId=f1091bf19d164daaa057932a1f18e8c9&index=1&q=Notice%20of%20the%20General%20Office%20of%20State%20Council%20on%20Promulgation%20of%20the%20Trial%20Measures%20on%20National%20Security%20Review%20for%20Foreign%20Investments%20in%20Pilot%20Free%20Trade%20Zones

See “Free trade zone ready for deepening reform on foreign exchange.” Retrieved from http://www.chinadaily.com.cn/m/shanghai/lujiazuitest/2015-02/13/content_19582664.htm.

Notice of the General Office of the State Administration of Foreign Exchange to Address Issues Arising in Administering Conversion and Payment of Foreign-invested Enterprises’ Foreign Exchange Capital (国家外汇管理局综合司关于完善外商投资企业外汇资本金支付结汇管理有关业务操作问题的通知), September 11, 2008.

See “Shanghai Free Trade Zone’s New Foreign Exchange Regime,” (2014). Retrieved from http://www.linklaters.com/Insights/AsiaNews/LinkstoChina/Pages/Shanghai-Free-Trade-Zone-New-Foreign-Exchange-Regime.aspx.

Such as Decision of the Standing Committee of the National People’s Congress on Authorizing the State Council to Temporarily Adjust the Administrative Approval Items Prescribed in Relevant Laws in China (Shanghai) Pilot Free Trade Zone(全国人民代表大会常务委员会关于授权国务院在中国(上海)自由贸易试验区暂时调整有关 法律规定的行政审批的决定); Detailed Implementation Rules for Further Promoting Pilot Forex Administration Reform in China (Shanghai) Pilot Free Trade Zone (进一步推进中国(上海)自由贸易试验区外汇管理改革试点实 施细则). Retrieved from http://www.lawinfochina.com/display.aspx?id=16533&lib=law&SearchKeyword=&SearchCKeyword=

See “Hony capital’s cross-border investment plan in the free trade zone: Introduce the dollar funds into the free trade zone.” Retreived from http://www.legendholdings.com.cn/en/NewsCenter/MediaReports.aspx?tid=dbe9774d-e8e7-449b-bbb9-ee117454b70e.

Available at http://www.shzgd.org/node787/node2327/node2330/node2331/u1a1775831.html.

Decision of the State Council on Temporarily Adjusting the Special Access Administrative Measures Prescribed by Certain Administrative Regulations and Ministerial Rules approved by the State Council in the China (Shanghai) Pilot Free Trade Zone(国务院关于在中国(上海)自由贸易试验区内暂时调整实施有关行政法规和经国务院批准的部门规章规定的准入特别管理措施的决定), September 4, 2014.