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New rules issued for overseas investment
By Chuan Yu (China Daily)
Updated: 2005-10-24 05:14
China's foreign exchange regulator has announced a new regulation relating to
local citizens' overseas fundraising and return investment.
The new regulation, which comes into effect next month, will replace
controversial rules promulgated early this year.
They were believed by many to have created administrative obstacles for the
use of venture capital by many Chinese private companies, particularly small and
medium-sized ones.
The new regulation was announced by the State Administration of Foreign
Exchange (SAFE) yesterday. It allows domestic citizens, by using domestic
assets, to set up overseas special purpose vehicles (SPVs) for fundraising
purposes and make a return investment in China. It specifies the procedures and
requirements.
The new regulation aims to "encourage, support and guide the development of
the non-State sector, further improve the policy support system for venture
capital, and regulate cross-border capital transactions by domestic citizens
through SPV-based fundraising and investment activities," the administration
said in a statement.
Partly to circumvent high listing standards and strict forex regulatory
requirements, an increasing number of Chinese private firms have used overseas
SPVs to raise funds in recent years. This method also encouraged the
participation of venture capital, which relies heavily on easy exit channels.
But SAFE rules enacted at the beginning of this year, aimed at blocking
capital flight and tax evasion, reportedly slowed down the overseas listings of
Chinese private firms, as they contained stricter approval procedures.
(China Daily 10/24/2005 page2)
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