The Ministry of Commerce, together with other nine departments of the State Council, recently released the Several Policy Measures on Further Facilitating Foreign Institutions’ Investments in Domestic Technology-oriented Enterprises (the “Several Measures”). There are 16 specific measures in four different areas: optimizing administrative services, enhancing financing support, strengthening exchange and cooperation, and improving investment exit mechanisms. These measures promote high-level opening-up and encourage foreign institutions to engage in investment activities in China. In conjunction with the interpretations of the Several Measures delivered by the head of the financial department of the Ministry of Commerce1, we have summarized below the key points concerning foreign institutions.
I. Streamlining the approval process for QFII / RQFII qualification and supporting QFLP pilots
To optimize administrative services for foreign institution access, the Several Measures cover improvements in three areas: facilitating access, optimizing foreign exchange administration, and implementing differentiated regulatory supervision.
(1)In terms of foreign access, foreign institutions’ applications for QFII / RQFII qualifications will be reviewed in a more efficient manner, to better meet foreign institutions’ intentions to invest in the domestic market. Streamlining the approval process for access to the domestic market will enhance efficiency and reduce the waiting time for foreign institutions’ engagement in investment activities in China, thereby boosting the willingness of international institutions to invest in China.
(2) In terms of foreign exchange administration, ongoing improvements relating to foreign direct investment will be made to facilitate foreign institutions’ domestic equity investments. It is worth noting that the Several Measures explicitly encourage foreign institutions to invest in domestic technology-oriented enterprises through QFLP pilots, which is expected to inject new vitality into the development of the QFLP scheme.
(3) In terms of differentiated regulatory supervision, firstly, venture capital funds managed by foreign-owned managers will be treated equally with those managed by domestic-owned managers, subject to the relevant provisions on differentiated supervision of the Regulations on the Supervision and Administration of Private Investment Funds. Secondly, venture capital funds, as a special type of funds, are subject to self-disciplinary management different from other types of private funds in terms of the fund manager registration, fund filing and filing of changes. Lastly, venture capital funds engaging in lawful fundraising, compliant investment, and honest operations are subject to differentiated supervision and administration in terms of fundraising, investment operations, risk monitoring, and on-site inspections.
II. Facilitating the movement of personnel from foreign institutions and encouraging the localization of operations
The Several Measures support foreign institutions to expand their operational presence and improve the localization of their operations in China by setting up offices and developing local teams. For foreign personnel coming to China, the Several Measures make it more convenient for short-term visa applications and introduce exemptions from appointments and fingerprint collection. Eligible operational personnel from foreign institutions will also receive support when applying for long-term visas, facilitating the movement of personnel that is necessary for foreign institutions’ business operations in China. The streamlined short-term visa policy is expected to enhance the flexibility and efficiency of foreign personnel coming to China, thereby fostering closer international exchanges and cooperation. The support for long-term visas indicates that the Chinese regulatory authorities welcome and support foreign institutions’ long-term and in-depth investment and operational activities in China, which will help stabilize their China presence and investments and continue to build up their local teams in China.
III. Improving investment exit mechanisms
Improving the investment exit mechanisms for foreign institutions in China is a major focus of the Several Measures. They aim specifically to:
(1) Advance the private equity and venture capital fund share transfer pilot, broaden the exit channels for private funds, and form a virtuous cycle of “investment-exit-reinvestment” to encourage foreign institutions to engage in domestic equity investments.
(2) Safeguard the free repatriation of legitimate income in RMB or foreign exchange obtained by foreign institutions in China in accordance with the law.
(3) Facilitate foreign institutions to enjoy tax benefits. Presently, when foreign institutions participate in the dividend distribution of their invested listed companies, they are required to submit an “Information Report Form on Non-Resident Taxpayer Enjoying Treaty Benefits” to claim the relevant treaty benefits; otherwise, the listed companies will first withhold and pay the taxes on their behalf, and foreign institutions can apply for treaty benefits and tax refunds afterward. However, the Several Measures address the needs of foreign institutions. It states that through information exchanges between government departments, clearing institutions, and listed companies, listed companies may directly withhold according to the preferential provisions, and distribute dividends to foreign institutions, without the need for subsequent tax refunds. Consequently, foreign institutions will not have to submit an information report form to each listed company each time. More details can be found in the Guidelines on Facilitating the Enjoyment of Tax Treaty Benefits by Foreign Institutions accompanying the Several Measures.
The Several Measures may enable foreign institutions to conduct investment and capital operations in China more efficiently by optimizing administrative services and ancillary supportive measures. Promoting exchanges and cooperation and improving investment exit mechanisms provides foreign institutions with more protection and flexibility in their investments in China. The introduction of the Several Measures not only provides more convenience and a favorable investment environment for foreign institutions to develop their businesses in China, but it also releases positive signals to international investors, demonstrating China’s commitment to high-level openness. Notably, the head of the financial department of the Ministry of Commerce mentioned that in the next step, the Ministry of Commerce will work together with other departments to guide local authorities and agencies to ensure the proper implementation of the policies and measures of the Several Measures, so as to attract foreign institutions to expand their investments in China. It is expected that the government authorities will introduce more detailed rules to implement the Several Measures.
1. For more details of the Interpretation, please refer to http://www.mofcom.gov.cn/article/zcjd/jdzhsw/202404/20240403504774.shtml.
