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On a certain date, the Ministry of Commerce, the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission of the State Council, the State Taxation Administration, the State Administration for Market Regulation, and the State Administration of Foreign Exchange jointly revised and released the "Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors" (hereinafter referred to as the "Measures"). To ensure the smooth implementation of the Measures, officials from the relevant departments of the six agencies answered questions from reporters regarding the Measures.

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Question: What is the background and significance of the revision of the "Measures"?

Answer:

The report of the 20th National Congress of the Party emphasizes the need to "adhere to high-level opening up to the outside world, accelerate the construction of a new development pattern with the main domestic circulation and mutual promotion of domestic and international circulations," and to "improve the functions of the capital market and increase the proportion of direct financing." The Third Plenary Session of the 20th Central Committee of the Party calls for "orderly expansion of the opening up of China's commodity markets, service markets, capital markets, labor markets, etc.," and "enhancing the convenience of foreign capital in conducting equity investment and venture capital in China." In order to resolutely implement the decisions and deployments of the Party Central Committee and the State Council, the Ministry of Commerce, in collaboration with the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission of the State Council, the State Taxation Administration, the State Administration for Market Regulation, and the State Administration of Foreign Exchange, has conducted in-depth research to advance the revision of the Measures.

Strategic investment refers to the act of specific foreign investors directly acquiring and holding shares in a listed company for the medium to long term. In a certain year, the Ministry of Commerce, the China Securities Regulatory Commission, the State Taxation Administration, the former State Administration for Industry and Commerce, and the State Administration of Foreign Exchange jointly issued the Measures, providing institutional safeguards for foreign investors' strategic investments in listed companies. According to statistics, since the implementation of the Measures, foreign investors have cumulatively made strategic investments in numerous listed companies, playing a positive role in promoting the healthy development of China's capital market.

In recent years, with the sustained and healthy development of China's economy and the further deepening of reform and opening up, the scale of the securities market has further expanded, giving rise to the need for attracting more high-quality foreign capital. Additionally, with the introduction or revision of laws such as the Foreign Investment Law, Securities Law, and Company Law, significant adjustments have been made to relevant regulatory systems, necessitating an update to the Measures in light of the new circumstances. Guiding more high-quality foreign capital towards listed companies can not only promote the expansion and improvement of foreign capital utilization but also contribute to the upgrading of China's industries and the healthy and stable development of the capital market. Meanwhile, China's securities market regulatory system has become increasingly robust, providing institutional safeguards for effective risk prevention. During the revision process, we publicly solicited opinions from society and widely listened to the views of relevant institutions, experts, and scholars through forums and other means. Overall, the revision of the Measures was generally welcomed by all parties, who also provided specific suggestions for modification. We have carefully studied the opinions and suggestions from all parties, revised the Measures, and released the new version.

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Q: The revised Measures have facilitated strategic investments by foreign investors in listed companies. Could you please provide some information on this?

Answer:

The Ministry of Commerce, in collaboration with the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission of the State Council, the State Taxation Administration, the State Administration for Market Regulation, and the State Administration of Foreign Exchange, has conducted in-depth research to revise and optimize the Measures, adhering to the principles of further expanding openness, supporting long-term and value-oriented investment, and preventing and mitigating risks. The revised Measures primarily lower investment thresholds in five aspects, aiming to further broaden the channels for foreign investment in the securities market, leverage the potential of strategic investment channels for attracting investment, and encourage foreign investors to engage in long-term and value-oriented investment.

The revision allows foreign natural persons to make strategic investments. The original Measures only permitted foreign legal entities or organizations to make strategic investments, excluding foreign natural persons. This amendment aligns with the Foreign Investment Law of the People's Republic of China, incorporating foreign natural persons into the category of foreign investors, thereby permitting them to make strategic investments in listed companies.

Second, the asset requirements for foreign investors are relaxed. The original Measures required that the total amount of actual assets held overseas by foreign investors be no less than $100 million or the total amount of actual assets managed overseas be no less than $100 million. To facilitate and promote the introduction of more long-term funds by listed companies, this revision appropriately lowers the asset requirements for foreign investors who are not controlling shareholders. If a foreign investor does not become the controlling shareholder of a listed company after implementing strategic investment, the asset requirement for them is reduced to a total amount of actual assets no less than $50 million or the total amount of actual assets managed no less than $50 million; if they become the controlling shareholder of a listed company, the requirement remains that their total amount of actual assets be no less than $100 million or the total amount of actual assets managed be no less than $100 million.

The third measure is to add the strategic investment method of tender offer. The original "Measures" only included two strategic investment methods: private placement and agreement transfer. In accordance with relevant provisions of the "Securities Law of the People's Republic of China" and the actual situation of the securities market, this revision allows foreign investors to implement strategic investments through tender offers.

Fourth, for strategic investments implemented through private placement or tender offer, it is permitted to use shares of offshore non-listed companies as payment. The original Measures did not involve any provisions related to cross-border share swaps. As a special case of mergers and acquisitions, strategic investments were subject to the relevant requirements of the Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors. The Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors stipulate that for mergers and acquisitions of domestic enterprises in the form of cross-border share swaps, the equity used as payment must be that of offshore listed companies. This revision aims to attract foreign investors to strategically invest in listed companies by comprehensively utilizing various methods such as cash and equity, and to facilitate domestic listed companies to acquire offshore assets through cross-border share swaps. At the same time, considering that private placement and tender offers already have regulatory rules to ensure fair transactions, we implement classified management for cross-border share swaps. For strategic investments implemented through private placement or tender offer, it is allowed to use shares of offshore non-listed companies for cross-border share swaps.

The fifth measure is to appropriately reduce the shareholding ratio and lock-up period requirements. The original Measures stipulated that the shareholding ratio of foreign investors in listed companies through initial strategic investment should be no less than %, and the acquired shares must not be transferred within three years. This revision, in conjunction with securities market regulatory rules, eliminates the shareholding ratio requirement for strategic investment implemented through private placement, and reduces the shareholding ratio requirement for strategic investment implemented through agreement transfer or tender offer from % to %. It also appropriately relaxes the lock-up period requirement while maintaining the long-term investment nature of strategic investment, adjusting the lock-up period for foreign investors from no less than years to no less than months. If other regulations impose longer lock-up periods (such as the requirements in Article 75 of the Securities Law of the People's Republic of China, Article 74 of the Measures for the Administration of Listed Company Acquisitions, and Article 59 of the Measures for the Registration Administration of Securities Issuance by Listed Companies), those provisions must be followed.

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Question: The revised Measures have stipulated provisions for strengthening supervision and preventing risks. Could you provide an introduction to the relevant situation?

Answer:

The Party Central Committee and the State Council place great emphasis on balancing development and security. The Third Plenary Session of the 20th Central Committee of the Party calls for risk prevention, strengthened regulation, and the promotion of healthy and stable development of the capital market. In the new "Measures," we focus on building a collaborative regulatory framework where market self-discipline, government oversight, and social supervision support each other. We also enhance the alignment with systems such as security reviews and antitrust reviews. While steadily expanding openness to the outside world, we ensure to plug management loopholes, prevent and mitigate risks, and uphold the bottom line of national security.

1. Strengthen the responsibilities of intermediary agencies. Require the engagement of intermediary agencies to provide professional opinions on whether strategic investment is compliant, and if the intermediary agency, after due diligence, deems it non-compliant, the securities registration and settlement institution shall not process the relevant procedures, and the China Securities Regulatory Commission may impose penalties on irresponsible intermediary agencies in accordance with the provisions of the Securities Law of the People's Republic of China. Intermediary agencies should clarify the total holdings of listed companies by foreign investors and their concert parties through various methods (including but not limited to the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism), to prevent excessive holdings or obtaining control beyond the share ratio limit. For violations of the negative list, relevant departments shall handle them accordingly. 2. Require investors to make compliance commitments in information disclosure. When fulfilling information disclosure obligations, foreign investors should disclose whether the strategic investment complies with the Measures, and may make commitments to comply with strategic investment upon request of relevant parties. If violated, they voluntarily refrain from exercising voting rights and pledging shares within a certain period. 3. Align with the foreign investment security review system. Strategic investment by foreign investors in listed companies that affects or may affect national security shall be subject to security review in accordance with relevant provisions such as the Foreign Investment Security Review Measures. 4. Align with antitrust review rules. Strategic investment that meets the standards of operator concentration shall apply for antitrust review. Operators that constitute operator concentration and meet the filing standards set by the State Council shall file with the antitrust enforcement agency of the State Council in advance, and no concentration may be implemented without filing. 5. Increase the provisions on administrative penalties by the commerce authorities. In addition to the supervisory and penalty responsibilities exercised by various joint-issuing departments in accordance with the law, the commerce authorities may also impose administrative penalties on behaviors that violate the relevant provisions of the Measures.

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Can foreign investors make strategic investments in the National Equities Exchange and Quotations, also known as the New Third Board?

Answer:

Foreign investors may refer to the Measures when implementing strategic investments in companies listed on the New Third Board.

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Question: Do foreign investors need to comply with the provisions of the Measures when purchasing shares or depositary receipts of listed companies through the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, or Shanghai-London Stock Connect?

Answer:

No, but it must comply with the regulatory requirements of the securities market.

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After the implementation of the Measures, will the lock-up period for foreign investors who have already implemented strategic investments also be shortened?

Answer:

The lock-up period will not be shortened. To maintain the stability of investment relationships and protect the interests of securities market investors, foreign strategic investors who have already implemented strategic investments should continue to comply with the original annual lock-up period requirements as stipulated in the original Measures, in accordance with their original commitments.

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Can foreign investors participate in the private placement of a listed company with pre-determined issue targets as "strategic investors both at home and abroad" under the "Measures for the Registration Administration of Securities Issuance by Listed Companies"?

Answer:

Sure. Foreign investors participating in the private placement of listed companies with pre-determined issuers as "domestic and foreign strategic investors" should comply with the relevant requirements of the Measures, as well as the regulations and regulatory requirements of the China Securities Regulatory Commission.

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After the new Measures are introduced, do foreign investors still need to apply for approval from the commerce department and obtain a reply for strategic investment in listed companies?

Answer:

No need. After the implementation of the "Foreign Investment Law of the People's Republic of China," the approval and filing for the establishment and changes of foreign-invested enterprises by the commerce authorities have been fully abolished. The commerce authorities no longer approve strategic investment matters. Foreign investors and listed companies implementing strategic investments shall fulfill their information reporting obligations in accordance with the requirements of the "Foreign Investment Law of the People's Republic of China" and the "Measures for the Reporting of Foreign Investment Information," ensuring the authenticity, accuracy, and completeness of the disclosed and submitted investment information.

Source: Ministry of Commerce

Editor/Luan Guoxian

Review/Be cautious

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