Investments by offshore funds in China’s mining sector

In recent years, private equity funds have been increasingly keen to invest in mineral resources companies. Their interest has been further heightened by the rising prices of mineral products. This article will briefly examine some of the legal issues relating to offshore funds investing in China’s mining companies and seeking to exit once the company has been listed on the A-share market.

Industry access

An offshore fund registered in China as a foreign entity should refer to relevant legislation and policy (such as the Foreign Investment Industrial Guidance Catalogue) to ascertain whether foreign investment is allowed in a domestic Chinese company. For example, foreign investment is restricted in the exploration and mining of special and scarce coals and barites; and foreign investment is banned in the exploration and mining of tungsten, molybdenum, tin, antimony, fluorite and rare earths.

Due diligence

The most important assets of a mining company are its prospecting and mining rights, as well as land use rights and other intangible assets. An offshore fund should conduct detailed legal due diligence of these intangible assets to determine whether the company has lawful and effective control over the mineral resources and can carry out exploration and mining activities accordingly.

Wang Jihong is the managing partner of V&T Law Firm. She practises in the field of infrastructure development. William Qiu is a partner at V&T Law Firm