On 1 November 2024, six key Chinese regulatory bodies issued the New Measures for Strategic Investment in Listed Companies by Foreign Investors (Decree No. 3 of 2024). These measures, effective from 2 December 2024, replace the 2005 rules (Decree No. 28 of 2005, amended in 2015) and reflect the Foreign Investment Law framework, implemented in 2020, to align with evolving regulations for A-share market investments.
The Old Measures for Strategic Investment provided the foundation for foreign investment in Chinese A-share listed companies but became outdated following the Foreign Investment Law and other modernisation efforts. Key challenges under the old regime included:
High entry thresholds, with substantial capital requirements.
Lengthy lock-up periods (three years).
Limited transaction methods.
These barriers hindered investment flexibility and limited foreign participation.
The New Measures modernise this framework, reducing restrictions and introducing flexibility to encourage foreign investment in Chinese listed companies.
Key Updates in the New Measures for Strategic Investment
1. Expanded Scope of Eligible Investors
Foreign natural persons can now participate, alongside enterprises and organisations.
Investors from Hong Kong, Macau, Taiwan, and Chinese nationals living abroad are eligible.
This inclusion broadens the pool of potential investors, enhancing flexibility.
2. Lowered Asset Requirements
Total real assets reduced to:
USD $50 million, or
USD $300 million under management.
Controlling shareholders must meet:
USD $100 million in assets, or
USD $500 million under management (unchanged from prior rules).
3. Tender Offers as a Strategic Investment Method
Recognises tender offers (minimum 5% share acquisition) as a key method, alongside private placements and agreement-based transfers.
Eases technical barriers such as securities account access and currency conversion.
4. Reduced Lock-Up Period
Lock-up reduced from three years to 12 months, with potential for longer periods where required by other regulations.
Shortened lock-up enhances flexibility for investors seeking quicker exits.
5. Lowered Investment Ratio
Strategic investments through agreement-based transfers and tender offers require a minimum 5% shareholding, down from 10%.
No minimum ratio applies for private placements.
6. Stock-for-Stock Transactions
Introduces the option to invest using shares in offshore companies or issuing additional shares.
Facilitates cashless transactions, reducing barriers related to cash liquidity and currency exchange.
Market-Oriented Regulation under the New Measures
1. Elimination of Pre-Approval
Removes the requirement for Ministry of Commerce approval, replacing it with a self-reporting system:
Disclosure to stock exchanges, registrars, and regulatory bodies.
Assurances of information accuracy and integrity.
2. Enhanced Role of Intermediaries
Mandatory engagement of Chinese financial advisors, sponsor institutions, or law firms for:
Due diligence on investor qualifications.
Assessment of national security and regulatory compliance.
Public disclosure of professional opinions.
3. Foreign Investment Security Reviews
Incorporates national security reviews and sector-specific regulations (e.g., finance, taxation).
4. Exit Mechanisms
Simplifies pathways for investors to divest while ensuring transparency and compliance.
Expected Impact
1. Greater Alignment with Modern Legal Framework
Integrates with the Foreign Investment Law, Securities Law, and Company Law, clarifying processes and reducing uncertainty.
2. Increased Foreign Investment Volume
Lower thresholds, flexible exit options, and broader transaction methods encourage participation.
Aligning foreign investor regulations with domestic standards creates a level playing field.
3. Expanded Role of Legal Counsel
Heightened responsibilities for due diligence and compliance checks.
Increased demand for professional services in transactions involving foreign investors.
4. Implementation Challenges
Newly introduced methods (e.g., natural person participation, tender offers, stock-for-stock transactions) require practical application and refinement.
The New Measures for Strategic Investment mark a significant step towards liberalising foreign access to China's A-share market. They aim to attract greater foreign capital, encourage innovation in transaction structures, and foster a transparent and market-oriented investment environment. However, practical challenges in implementation will require ongoing adjustments and guidance.
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