Guidelines for foreign investment in Qianhai

The Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone has implemented more favourable pioneering and pilot projects than special economic zones, including: (1) launching a pilot project for cross-border renminbi loans and supporting enterprises in Qianhai borrowing renminbi at low cost from Hong Kong banks, with the loan term and interest rate determined at their discretion; (2) permitting cross-border bidirectional fund pools within groups and multinational corporations to have foreign exchange fund pools; and (3) launching a pilot project for the conversion of foreign exchange at will, with the foreign exchange capital of foreign-invested enterprises (FIE) convertible entirely at will and the option of retaining the renminbi proceeds derived from it in a dedicated account, and using the same at the enterprise’s discretion within its scope of business, and permitting FIEs whose main business is investment to use renminbi derived from the conversion of foreign exchange to engage in equity investment.

Qianhai also offers enterprises that take up residence in the zone reductions or exemptions of enterprise income tax and subsidies for individual income tax.

Common business models for foreign-invested investment enterprises

In addition to direct investment and acquisitions, foreign investors commonly establish foreign-invested investment companies (FICs), foreign-invested venture capital enterprises (FIVCs) and foreign-invested equity investment enterprises (mainly qualified foreign limited partners [QFLPs]). The scope of business of an FIC is broad, but the qualification requirements for foreign investors are stringent; the organizational form of an FIVC is more flexible, but it is subject to stringent regulation and narrow business scope. Foreign investors who are unable to set up FICs and FIVCs will seek to establish QFLPs, and in Shenzhen this model is available as a pilot project only in Qianhai.

Jack Lai is a partner and Tina Lan is an associate at Zhong Lun Law Firm in Shenzhen