Shanghai’s foreign-invested RMB funds need reform to appeal

For this column, Shanghai foreign-invested RMB funds refer to the RMB funds collected from domestic investors by foreign-invested equity investment enterprises or foreign-invested equity investment management enterprises established in Shanghai. According to the PRC Business Partnership Law and PRC Registration of Partnership Enterprises Administrative Measures, partnership enterprises refer to general partnership enterprises – including special general partnership enterprises – and limited liability partnership enterprises established by persons, legal persons and other organisations in China.

Pursuant to the Implementation Measures in relation to the Pilot Programme for the Development of Foreign-funded Equity Investment Enterprises in Shanghai, which came into force on 24 January 2011, foreign investors of the pilot’s foreign-invested equity investment enterprises consist mainly of foreign sovereign rights funds, pension funds, endowment funds, charitable funds, funds of investment funds, insurance companies, banks, securities companies and other investors from foreign organisations recognised by a joint conference set up by the Shanghai government for the pilot programme. Foreign-invested equity investment management enterprises that have received approval to participate in the pilot project may use foreign exchange funds to make capital contributions to the equity investment enterprises that they sponsor and establish. These contributions must not exceed 5% of the total funds raised and such contributions will not alter the original attributes of the equity investment enterprises it invests in.

Domestic or foreign investment?

It is important to differentiate between domestic investment and foreign investment of RMB funds, due to existing industrial policies and restrictions in China on the access to foreign investment of certain industries. These industries are open to domestic investment – or at least partly open – but are still closed to foreign investment.

Lin Wei is the director of International Practice at Zhonglun W&D Law Firm; Zhang Zhonggang is the associate director of the firm’s Competition and Anti-trust Protection Practice