On 1 Nov 2024, China’s Ministry of Commerce (MOFCOM), together with five other government departments, introduced updated regulations to simplify foreign investment in listed companies. This initiative is part of China’s ongoing efforts to enhance high-quality opening-up of its capital markets, making it easier for international investors to participate in Chinese listed firms.
According to a statement on MOFCOM’s website, these changes aim to attract more high-quality foreign capital into listed enterprises. This will not only boost foreign investment but also support China’s goals for industrial advancement and contribute to the stable and healthy development of its capital markets.
Key Changes in the Revised Measures
1. Allowing Foreign Individuals to Make Strategic Investments
Previously, only foreign corporations and other organizations could undertake strategic investments in Chinese listed companies, excluding individual foreign investors. This revision aligns with the Foreign Investment Law of the People’s Republic of China by recognizing foreign individuals as eligible investors and allowing them to make strategic investments in Chinese listed companies.
2. Easing Asset Requirements for Foreign Investors
The previous guidelines mandated that foreign investors hold at least $100 million in assets or manage assets worth at least $500 million. This revision has relaxed these asset requirements for non-controlling foreign investors, making it easier for a broader range of foreign investors to contribute long-term capital to listed companies in China.
3. Introducing Tender Offers as a Strategic Investment Option
Under the previous regulations, strategic investment methods were limited to private placements and negotiated transfers. This revision, in accordance with the Securities Law of the People’s Republic of China and current market practices, introduces tender offers as a new investment approach, providing foreign investors with another avenue for strategic entry into the market.
4. Allowing Overseas Shares as Payment for Strategic Investments
In cases of strategic investments made through private placements or tender offers, foreign investors are now permitted to use shares of overseas non-listed companies as payment. This change broadens the range of options for foreign investors by allowing cash or equity as forms of investment, facilitating cross-border share swaps for domestic companies acquiring overseas assets. A classification system has also been introduced to manage these cross-border share swaps, ensuring fairness in transactions under existing regulatory frameworks.
5. Reducing Shareholding and Lock-In Requirements
To better align with current market regulations, the revision has lowered shareholding requirements: for strategic investments via negotiated transfer or tender offers, the minimum shareholding threshold has been reduced from 10% to 5%. The lock-in period has also been shortened, from a minimum of three years to twelve months, reinforcing the medium- to long-term nature of strategic investments. Where specific regulations require a longer lock-in period, foreign investors will need to adhere to those stipulations.
Impact on Foreign Investors
For foreign investors, these new measures present several important implications:
- Enhanced Accessibility: With lowered asset requirements, foreign investors who previously may have been excluded can now participate. This is especially beneficial for mid-sized funds or individual investors interested in strategic positions within China’s economy.
- Greater Flexibility in Investment: The new investment channels, such as tender offers and the use of non-listed overseas shares, create greater flexibility in investment strategies. This variety allows foreign investors to adopt diverse approaches in acquiring stakes, broadening their options in portfolio management.
- Improved Liquidity and Exit Opportunities: Reduced lock-in periods mean that investors are no longer tied to long-term commitments that may hinder liquidity. This enhances their ability to respond to market changes and manage investments with greater agility, thus improving risk management and capital flow.
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