Saturday, July 13, 2024

China’s New Measures to Support Foreign Investment in Sci-tech Firms

Must read

China’s new policy measures aim to attract foreign investment in its technology sector by easing restrictions, promoting collaboration, and improving the investment environment.


On April 19, 2023, China’s Ministry of Commerce (MOFCOM) along with nine other departments announced a new set of policy measures (hereinafter, “new measures”) aimed at encouraging foreign investment in its technology sector.

Among the new measures, China intends to facilitate the issuance of RMB bonds by eligible overseas institutions and encourage both domestic and foreign-invested tech companies to raise funds through bond issuance.

Additionally, the government plans to streamline the process for foreign investment in Chinese tech firms through schemes like the Qualified Foreign Limited Partner (QFLP), while also expediting the approval of licenses for programs like the Qualified Foreign Institutional Investor (QFII) and the Renminbi Qualified Foreign Institutional Investor (RQFII), which enable foreign investment in Chinese stocks and bonds.

In this article, we offer an overview of the new measures and their broader significance in fostering international investment and driving innovation-driven growth, underscoring China’s efforts to instill confidence among foreign investors.

Overview of the new measures: Key objectives

The new measures contain a total of sixteen points aimed at facilitating foreign investment in China’s technology sector and improving the overall investment environment.

Divided into four main chapters, the new measures address key aspects including:

  • Facilitating access for foreign investors;
  • Streamlining foreign exchange management;
  • Promoting diversified financing channel; and
  • Refining exit mechanisms to facilitate a positive investment cycle.

Optimization of services management

Firstly, China aims to expedite the approval process for QFII and RQFII, ensuring efficient access to the Chinese market. Moreover, the government promises to simplify procedures, facilitating operational activities and fund management for foreign institutions.

Find Business Support

The new measures include improvements in managing foreign exchange for direct investment, thereby easing the path for overseas institutions to engage in domestic equity investments. Additionally, the new measures highlight the need to enhance operational efficiency and reduce financial barriers, in order to support for investments in domestic technology enterprises through QFLP scheme and optimization of cross-border fund concentration.

China is also striving to ensure fairness and transparency in the establishment of venture capital funds by overseas institutions within its borders. By implementing “tailored self-discipline management practices”, the government aims to create a level playing field where both domestic and foreign investors have equal opportunities to participate in venture capital activities.

What this means is that while foreign institutions are encouraged to invest and operate venture capital funds in China, they are also subjected to specific rules and regulations that ensure integrity and compliance with the law. These regulations are customized to suit the unique needs and circumstances of foreign investors, thus enabling them to navigate the investment landscape effectively.

Diversifying funding sources to promote science and technology innovation

According to the new measures, China will support eligible overseas institutions to issue RMB bonds with the funds directed towards the technology sector. This move aims to provide more financing channels for overseas institutions and encourage their investment in technological innovation in the Chinese market.

At the same time, China will also support overseas institutions to invest in technology-oriented enterprises, enabling them to issue corporate credit bonds and actively expand the scale of bond issuance. Moreover, the government will support the collaboration between Chinese banks and overseas institutions.

Strengthening cooperation, promoting efficient investment coordination

The new measures aim to enhance collaboration between Chinese and overseas institutions by supporting the establishment of joint investment cooperation and communication platforms. This involves the development of specialized mechanisms to facilitate financing for technology-oriented enterprises and projects.

Find Business Support

Platforms such as the National Industry-Finance Cooperation Platform, innovation and entrepreneurship competitions, and public roadshows will be used to provide services for overseas institutions to explore and evaluate early-stage technology enterprises.

Relevant departments, local governments, and industry associations will collaborate to compile demand lists based on their respective roles and priorities in industrial development, enterprise incubation, and technology transfer. The focus will be on fostering cooperation between overseas institutions and:

  • Advanced manufacturing enterprises
  • High-tech enterprises
  • Technology-oriented small and medium enterprises (SMEs)
  • Innovative SMEs
  • Specialized and new SMEs

Moreover, overseas institutions are urged to strengthen collaboration with relevant domestic entities and government-guided funds. This collaboration is essential for fostering innovation and driving economic growth.

The new measures encourage the creation of specialized funds, referred to as “mother funds” or “sub-funds”, focusing on emerging fields. These include:

  • Next-generation information technology
  • Artificial intelligence
  • Quantum technology
  • Biotechnology
  • New energy and future energy
  • Industrial machinery
  • Aviation and aerospace equipment
  • Power equipment
  • New materials
  • Core basic components
  • Instrumentation

Technology-oriented enterprises receiving overseas investment will be supported in enhancing collaboration with relevant countries along the industrial chain. This assistance aims to strengthen cooperation across the entire innovation process, from research and development to commercialization.

Meanwhile, overseas institutions investing in technology achievements will receive support for the application of technology transfer. This means that they will be encouraged to leverage their investments to facilitate the transfer of technology from research institutions or other entities to practical applications in the market.

This measure aims to encourage overseas institutions to not only invest in technology-oriented enterprises but also actively participate in and contribute to the development of emerging fields. Through collaboration and technology transfer, the goal is to drive innovation, enhance competitiveness, and foster sustainable growth in key sectors of the economy.

Facilitating personnel exchange

The new measures also aim to facilitate the entry of personnel from overseas institutions into China by addressing their visa requirements. Specifically:

  • For short-term visa applications: The government will implement targeted services to streamline the process. This includes the establishment of a “green channel” where individuals can apply for visas without prior appointments and are exempted from fingerprint collection, making the process faster and more convenient.
  • For long-term visa applications: Support will be extended to eligible personnel engaged in the operation of overseas institutions. This ensures that individuals can obtain the necessary visas to stay and work in China for an extended period, facilitating continuity and stability in their engagement with domestic entities.

Encouraging localization of operations

The new measures highlight support for overseas institutions to boost their investment in China by establishing offices, forming local teams, and, overall, enhancing localization operations.

By setting up offices and teams within China, foreign entities can gain deeper insights into the local market, culture, and regulatory landscape. This facilitates their operations, leading to increased effectiveness and efficiency. Ultimately, this initiative aims to integrate foreign institutions more closely into the Chinese market, fostering mutual benefits for both foreign investors and the local economy.

Facilitating a healthy investment cycle

One last crucial aspect of the new measures is to promote a healthy investment cycle within the science and technology sector.

Facilitating access for overseas investors

China recognizes the importance of overseas listing for technology companies to access capital markets efficiently. By ensuring smooth and stable channels for overseas listing financing, the country aims to accelerate the process for qualified technology enterprises seeking to list abroad.

Leveraging the Hong Kong financial market as a gateway, China aims to facilitate the listing process for technology companies, providing them with enhanced opportunities for fundraising and growth.

Encouraging mergers and acquisitions

Capital markets play a crucial role in facilitating mergers and acquisitions (M&A) activities. The new measures support listed companies in utilizing various payment tools, such as shares and convertible bonds, for acquiring technology-oriented enterprises.

This initiative is expected not only to streamline the M&A process but also to promote the integration of technology resources and capabilities, fostering innovation and enhancing market competitiveness.

Advancing private equity fund share transfer pilot

The pilot program for private equity fund share transfers aims to enhance the liquidity and flexibility of private equity investments. By encouraging overseas institutions to actively participate in investment transactions, China seeks to create a more dynamic investment environment.

This initiative provides investors with greater opportunities to enter and exit investments, thereby promoting a more vibrant and efficient market for technology investment.

Safeguarding rights and tax incentives

Find Business Support

As per the new measures, China ensures the rights of overseas institutions by guaranteeing the freedom to remit legitimate earnings in RMB or foreign currency obtained within the country.

Furthermore, the government will implement an optimized taxation system for listed companies, encompassing dividend withholding tax and settlement processes. This initiative aims to facilitate eligible overseas institutions in enjoying tax benefits as stipulated by the new regulations. By streamlining these taxation procedures, the government not only incentivizes foreign investment but also promotes transparency and efficiency in tax-related processes.

Conclusion

China’s new measures highlight a concerted effort to attract foreign investment in the science and technology sectors. These initiatives address the urgent need for fresh capital infusion, particularly in response to outbound investment restrictions imposed by the US.

By easing foreign exchange restrictions, facilitating RMB bond issuance for tech investment, and encouraging partnerships with government VC funds, China aims to create a favorable environment for foreign investors.

However, the effectiveness of these measures in reversing the declining sentiment towards China’s tech investments remains uncertain. While they signal China’s openness for business and serve as a response to US investment controls, their impact may be limited amid evolving geopolitical dynamics and shifting investor sentiments.

Ultimately, China’s push to strengthen its sci-tech sector through foreign investment reflects a strategic imperative in an era marked by rapid technological advancement and geopolitical competition.

About Us

China Briefing is one of five regional Asia Briefing publications, supported by Dezan Shira & Associates. For a complimentary subscription to China Briefing’s content products, please click here.

Dezan Shira & Associates assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Haikou, Zhongshan, Shenzhen, and Hong Kong. We also have offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Dubai (UAE) and partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh, and Australia. For assistance in China, please contact the firm at china@dezshira.com or visit our website at www.dezshira.com.

 

Latest article