Partnership Highlights New Foreign Investment Policies

The Beijing government encouraged the foreign investors to carry out the foreign investments through setting up joint private equity (PE) fund management enterprises in Beijing.

According to the news from Beijing Private Equity Association, the Beijing Municipal Finance Administration Bureau united with Beijing Municipal Commission of Commerce, Beijing Administration for Industry and Commerce, and Beijing Municipal Research and Development Commission and published the Temporary Guidelines for Establishing Foreign-funded PE Fund Management Enterprises in Beijing (hereafter the Temporary Guidelines in Beijing) on January 4. It is highlighted by the statement that the foreign investors can set up joint or other non-corporation PE fund management enterprises without violation against the national policies. In addition, the document is featured with the government capital support for the foreign PE.

The insider believed that the policy will give larger space for the foreign investors in setting up the joint PE fund management enterprises in Beijing. It also pushes Beijing at the same line of attracting foreign PE with Shanghai and Tianjin.

In June 2009, the government of Pudong New District, Shanghai issued the Temporary Guidelines of Establishing Foreign-funded PE Fund Management Enterprises in Pudong New District, Shanghai, making it become the first place in China allowing for foreign investor’s PE funds and venture capital. However, setting up joint PE fund management enterprises is only available for the domestic capital till last December in which the Chinese government issued the Temporary Guidelines for Foreign Enterprise or Individuals to Set up Joint Ventures in China to remove the ban.

The third article of the Temporary Guidelines in Beijing stipulated that “the foreign companies and other economic organizations or individuals can cooperate with Chinese companies and other economic organizations in setting up PE fund management enterprises according to the laws”. Its eighth article read: “the foreign-funded PE management enterprise conforming to the requirements of the central government and Beijing government in qualification, size and investment orientation can get the capital from the Beijing Private Equity Association.

In addition, the Temporary Guidelines in Beijing set up strict requirements for the credit ratings of the PE management enterprises and its senior executives. Its fourth article read: “the senior executives of newly founded PE management enterprises must have no violation records in recent 5 years or economic disputes under treatment; besides, his or her personal credit must be flawless”. The condition of senior executives for these enterprises must be proved by the self-regulatory organizations for Beijing Private Equity Association. Moreover, the similar requirements also work for the senior executives of the current foreign-funded PE management enterprises in China.

It was also stipulated in the Temporary Guidelines in Beijing that the foreign investors must have the following requirements to set up a PE management enterprise: first, the foreign-funded PE management enterprises must exist as companies with limited liability and they are allowed to use “Fund Management” in the corporate names; second, the registered capital of a foreign-funded PE management enterprise should not be lower than 2 million US dollars; third, the business scope of a foreign-funded PE management enterprise is “to accept a commission from the other PE funds and conduct the business related with non-security PE management and consultation”.