1、Tricor JunHeForeign Private Equity Funds In ChinaGuide to Market Entry and Operations 20222 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022TRICORTricor is Asias leading business expansion specialist,with global perspective and cross-regional expertise in corporate s

2、ervice and compliance management.Strategically headquartered in Hong Kong SAR,we operate out of 22 countries/territories and across a network of 49 offices.With a staff strength of 3,000,Tricor serves 50,000 clients,including more than 40%of the Fortune Global 500 companies and 2,000 listed companie

3、s in Asia.Founded in 2000,Tricor not only facilitates global multinationals and companies seeking entry into Asia Pacific,but also supports Mainland Chinese companies looking to grow internationally,across Asia and beyond.Tricor Greater China employs 1,200 professionals and has a service network acr

4、oss 17 key cities,including Beijing,Shanghai,Shenzhen,Hong Kong SAR,Macau SAR and Taipei.With global knowledge and local expertise,Tricor provides overseas and domestic clients with one-stop specialized solutions in corporate governance,finance&accounting,tax advisory,HR&payroll,fund services,invest

5、or services,outbound investment,and corporate trust&debt services.Tricor offers fund services to private equity,venture capital,real estate and alternative assets funds for asset managers and sovereign wealth funds worldwide.Tricor has fund service operations in Mainland China,Hong Kong SAR,Singapor

6、e,Cayman Islands and British Virgin Islands.As one of the first professional service providers to serve foreign and domestic asset management firms,Tricor assists around 200+private fund managers in Asia Pacific.Tricors fund services cover the entire life cycle of alternative investment business.Fro

7、m fund establishment to operation and exit,Tricor has rich and comprehensive experience in the operation of private funds,including fund formation,business structure maintenance,fund accounting,reporting and tax.Tricor assists private fund managers and funds to optimize and efficiently manage their

8、middle-and back-office functions.With the support of Tricors digital transformation and outsourcing solutions,private fund managers are empowered to focus on their core business and strategic initiatives to achieve rapid and sustainable growth.For more information,please visit:Website: WeChat:Tricor

9、Group LinkedIn:Tricor Group3x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022JunHe,founded in Beijing in 1989,is one of the first private partnership law firms in China.Since its establishment,JunHe has grown to be one of the largest and most recognized Chinese law fi

10、rms.The firm has twelve offices around the world and a team comprised of more than 1070 professionals,including over 320 partners and legal counsel,as well as over 750 associates and legal translators.As a law firm providing a full range of legal services,JunHe has different practice groups and spec

11、ialized attorneys in corporate and M&A,banking,insurance,securities,private equity,intellectual property,taxation,labor and employment,dispute resolution,etc.When faced with large and complex legal service projects,JunHe is able to quickly form project teams across different departments and regions

12、to provide clients with one-stop,high-level and innovative comprehensive legal services under unified coordination and command,benefiting from JunHes integrated and platform-based management system.JunHe fund team is comprised of more than 30 partners and associates.JunHe fund team is able to respon

13、d to clients needs quickly and efficiently and provides professional legal advice and solutions concerning the establishment and registration of managers,the establishment and fundraising of a fund and the day-to-day operations of a fund.JunHe team members have experience in providing legal services

14、 through the complete life cycle of several funds,which makes us one of the few legal service teams in the market with first-hand experience in designing management team incentives,resolving fund-related disputes,handling defaulting investors,or liquidating or restructuring funds.For more informatio

15、n,please visit:Website:www.JunH WeChat:JUNHE_LegalUpdatesJUNHE4 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022FOREWORD As an important part of the multi-level capital market in China,private equity(PE)investment has grown over the past 30 years to become a large-sc

16、ale sector.Although the growth rate of the operational scale of Chinese PE funds has decreased,since the New Regulation on Asset Management was implemented in 2018,Chinas PE fund market has entered a“quality improvement”phase in which it has become increasingly standardized and systematic.For instan

17、ce,the Asset Management Association of China(AMAC)published that by the end of September 2022,there were 24,129 private fund managers,139,570 private funds,the scale of which was RMB 20.39 trillion(equivalent to USD 2.87 trillion),and over 31,549 PE investment funds with a total AUM of RMB 10.96 tri

18、llion(equivalent to USD 1.54 trillion).In terms of the number of managers and the scale of funds,PE investment funds play an important role.As the worlds second largest capital market,China is one of the most important channels for global investors engaging in asset allocation.With the gradual openi

19、ng up of its capital market,an increasing number of foreign institutional investors are gaining greater access to Chinas colossal opportunities and expanding their business scope cross the country.PEDATA statistics show that as of the first half of the 2022,the number of foreign PE funds totalled 80

20、1,including 259 JVs.The target amount of funds totaled USD 313.95 billion,and the target amount of JV PE funds totaled USD 83.07 billion.Although foreign private fund managers have emerged as very prominent players,setting up a business in another country and managing an international business is mu

21、ch more complicated than it appears.Foreign asset management firms must plan ahead accordingly.We observed that international asset management institutions typically set up an asset management company in Singapore,Hong Kong,or offshore islands(such as the Cayman Islands or the British Virgin Islands

22、),as an investment entity in the Chinese market.As an integral part of Chinas PE fund market,foreign PE funds have displayed the following characteristics for the past couple years:Despite a decrease in fundraising speed and scale,foreign PE funds remain relatively stable.Foreign PE funds are increa

23、sing their investment in China and prioritizing high-quality,mid-,and late-cycle asset allocation.The institutionalization of limited partnerships(LPs)and the Pareto Principle effect of fund managers has become increasingly apparent.In terms of the operational management,the regulation of foreign PE

24、 funds has become increasingly systematic and standardized.For instance,the AMAC website shows that as of November 3,a total of 2,442 private fund institutions have been deregistered for violating regulations.This year,552 private fund institutions have been deregistered for reasons such as failure

25、to proactively contact the AMAC,failure to submit special legal opinions upon expiration of the time limit,and failure to consistently comply with managerial registration requirements.To ensure business continuity and performance stability,PE institutions should establish a complete and robust corpo

26、rate governance system and compliance risk control mechanisms to respond to evolving compliance requirements.With its vast economic system and market potential,the Chinese PE fund market continues to be an attractive investment destination for foreign investment funds.To keep abreast of evolving com

27、pliance regulations and the market environment,foreign investors must set up and operate PE funds in China in a standardized,orderly and reasonable manner.Despite numerous challenges-including evolving compliance requirements,operational complexity,local competition,rapid development of the economy

28、and growing demand for wealth management solutions-foreign PE funds are picking up pace.With constant improvements being made to policies and the business environment,foreign PE funds are continuing to exhibit profound development and fulfill their potential and invigorate Chinas real economy.Based

29、on our years of experience in serving numerous domestic and foreign PE funds,Tricor has collaborated with JunHe Law Firm to compile this report.Our purpose is to interpret the development of foreign PE funds and relevant regulatory landscape in China,and provide suggestions for establishment and ope

30、rations.This report consists of four chapters,which outline the status quo and development trends,market entry framework,key tax-related matters,as well as compliance requirements and daily operations.We hope that this report can serve as a reference for foreign PE fund managers and their peers.Kim

31、JenkinsTricor Group CEO 5x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022“Foreign asset management institutions recognize the long-term stable development and investment potential of the economy and are continuing to invest in China.In addition to business continuity

32、 and performance stability,foreign PE fund managers must also focus on the challenges of evolving compliance requirements,complex mid-and back-stage operations,and fierce local competition.Domestic investors are demanding more in terms of professional competence,investment strategies,and service sys

33、tems.Based on long-term development strategies,PE fund managers should look to improve their professional investment skills and risk control ability,operational efficiency and compliance levels.Hailiang ZhangCEO,Tricor Greater China “Following the promulgation and implementation of the Foreign Inves

34、tment Law of the Peoples Republic of China,the framework for the administration of foreign investment has undergone significant changes in recent years.Chinas regulatory authorities and industry self-disciplinary organizations has implemented various policies to optimize the business environment for

35、 foreign institutions,sends a message to the global market about Chinas commitment to firmly open up its financial markets.Foreign PE funds have been actively expanding their business footprints across China.This whitepaper,based on JunHes observations from the front-line of the market and Tricors r

36、ich industry experience serving private funds,aims to provide readers with an in-depth insight into regulatory trends,market access routes,operational and compliance guidance for foreign PE funds.We hope that readers will be inspired.Shelley WangPartner at JunHe “Foreign PE funds active participatio

37、n in China demonstrates their confidence and long-term investment commitment to the market.The vigorous development of foreign PE funds will hasten the creation of a productive ecosystem that will benefit Chinas capital market.As leading service providers,JunHe LLP and Tricor are honored to support

38、the growth of foreign PE funds in China.We expect that,notwithstanding past policy changes and market uncertainties,foreign PE funds will continue to grow steadily with the further opening-up and development of Chinas capital market.Natasha XiePartner at JunHe“Recent years have seen increasingly str

39、ingent regulation of the PE industry and standardizing compliance has become a focal point.The regulatory authorities have promulgated specific provisions for the registration of PE fund managers and products,management structure,practitioner qualification,performance appraisal,remuneration manageme

40、nt,accounting treatment related to asset management products,and finance&tax information reporting.Because of these industry characteristics,foreign PE fund managers face more complex business decisions,daily operational practices and compliance concerns across the entire life cycle of alternative i

41、nvestment business.Xuting You COO,Tricor Mainland China 6 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022499652729293035Foreword.Development&Status Quo of Foreign Private Equity in China1.1 Macrotrend of PE Fund Developmen

42、t in China .1.1.1 History of PE Funds in China .1.1.2 Status Quo of Chinas PE Fund Market .1.1.3 Development Trend of PE Funds in China .1.2 Development of Foreign PE Funds in China.1.2.1 Status Quo of Foreign PE Funds in China .1.2.2 Development Characteristics of Foreign PE Funds in China .1.2.3 D

43、istribution of Foreign PE Investment in China by Industries .1.3 Overview of Development of Policies Governing Private Funds .1.3.1 Summary of Important Policies Governing Foreign-invested Private Funds .1.3.2 Trends in the Regulation of Market Access Qualification of Foreign-invested Institutions.M

44、arket Entry of Foreign-Invested Private Funds in China2.1 Overview of PE/VC Funds .2.1.1 Characteristics .2.1.2 Common Organizational Forms of PFs .2.1.3 Regulatory Authorities .2.2 Registration of PFMs .2.2.1 Registration Requirements .2.2.2 Basic Process .2.3 Filing of PF Products .2.3.1 Filing Re

45、quirements .2.3.2 Basic Process .2.4 Cross-border Investment Routes .2.4.1 Foreign Investment Access .2.4.2 Main Modes of Funds Cross-border Investments .Tax-Related Matters for PE Investment3.1 Selection of PE Funds Structures&Tax Considerations.3.1.1 Comparison of Relevant Tax Matters of PE Funds

46、under Different Fund Structures .3.1.2 Tax Considerations during PE Fund Formation .3.2 Tax Incentive Policies .3.2.1 National Tax Incentive Policies .3.2.2 Analysis of Preferential Policy of Major City .CONTENTS7x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022PE Fun

47、d Operations&Compliance4.1 Operational Complexity of PE Funds .4.1.1 Cause of Operational Complexity of PE Funds .4.1.2 Daily Operation of the Middle and Back Offices of PE Funds .4.1.3 Operational Compliance Requirements for PE Funds .4.2 PE Operational Compliance Matters .4.2.1 Key Points in CRS f

48、or PE Funds .4.2.2 AMAC Information Disclosure .4.2.3 Fundraising Conduct .4.2.4 Foreign Exchange Administration Requirements .4.2.5 Key Points of Valuation of PE Funds .4.2.6 Distribution of Fund Income .4.2.7 Exit and An Indication of PE Funds .4.3 Case Analysis .Appendix .Conclusion .Tricor Fund

49、Service .JunHe Fund Service .636365667893 8 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 202201Development&Status Quo of Foreign Private Equity in China9x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20221.1.1 Histor

50、y of PE Funds in ChinaTimeline of private equity development in ChinaPE investment refers to investment in the equity of unlisted companies or the non-public transaction equity of listed companies.PE funds can be traced back to the late 19th century in the United States.Modern operational patterns a

51、nd characteristics arose in the mid-20th century.While international PE has continued to develop,PE was first introduced in China just 30 years ago.Despite being a latecomer to the market,China has seen early success owing to the domestic markets high potential and resilient growth since reform and

52、opening up.AMAC reported that by the end of June 2022,the total number of PE fund management institutions was 24,330,and the number and amount of funds under management were RMB 133,797 and RMB 19.97 trillion,respectively.PE and VC fund 1.1 Macrotrend of PE Fund Development in Chinamanagers totaled

53、14,814(60.88%).Meanwhile,the number and the amount of PE investment funds were RMB 31,536(23.57%)and RMB 10,842.311 billion(54.3%),respectively.The amount of VC investments funds was RMB 25,743.31(12.89%).The PE investment funds play an important role in terms of manager number,fund number,and fund

54、size(see Figure 1).Based on the history of PE in China,each breakthrough and development step is not independent of foreign private equity funds.Foreign-owned funds denominated in USD have not only aided the development of Chinese PE funds but also played an important role in the market.With the rec

55、ent establishment of Chinas multi-level capital market,PE funds have become increasingly systematic.Higher levels of development necessitate more stringent operational and management requirements.PE fund supervision has also become more specialized and refined in recent years.The industry has since

56、raised more systematic compliance requirements.Figure 1.Number of Chinese PE fund managers and fund size160,000140,000120,000100,00080,00060,00040,00020,000016,00014,00012,00010,0008,0006,0004,0002,00002,1203,6128,038108,423 1,06025,743201416,9042000212022H112,08817,27037,60362

57、,911 78,01488,71398,716 107,7206,077 9,09523,7079,5403,36613,20013,24114,81414,68314,88214,98615,01201-Development and Status Quo of Foreign Private Equity in ChinaSource:AMACAUM of PE fund-VC(RMB 00 million)AUM of PE fund-Equity(RMB 00 million)Number of PE fund managers-Equity and VC(company)10 x|F

58、oreign Private Equity Funds In China-Guide to Market Entry and Operations 20221.1.2 Status Quo of Chinas PE Fund Market Late start,rapid development Despite having a fairly late start,Chinas private equity(PE)and venture capital(VC)market has grown rapidly in size due to vast economic entities and g

59、reat development potential.Since 2016,Chinas PE and VC markets have experienced continual growth in assets under management(AUM)and a rapid rise in global proportion.While international financial markets have been disrupted by COVID-19 and geopolitical factors since 2020,Chinas PE market has maintai

60、ned a strong momentum.According to AsiaPacific Private Equity Report 2022 released by Bain&Company this year(see Figure 2),the Greater China region is continuing to dominate the Asia Pacific PE market.In 2021,the value in the exchange of Chinas PE market totaled USD 128 billion,accounting for 43%of

61、total investment in the Asia Pacific region.Chinas PE investment increased by 23%.According to the report,Chinas PE fund market will exhibit the following characteristics:1)The amount and volume of investment transaction will remain active.2)Growth investment will continue to dominate the investment

62、 market.3)Fundraising and exit will face pressure and develop in opposing direction compared to investment.4)Challenges and opportunities will co-exist,and the influence of policy uncertainty on PE investment will continue to increase.01-Development and Status Quo of Foreign Private Equity in ChinaI

63、ncreasingly diversified businesses,PE and VC funds account for more than 60%According to the Asset Management Association of China(AMAC)data(see Figure 3),the business types of PE funds in China have expanded to include equity,VC,securities,asset allocation,and others.In terms of AUM,equity,VC and s

64、ecurities PE funds dominate the market.Total size of equity and VC funds have seen a steady rise in recent years.As of Q1 2022,the AUM of PE/VC funds reached RMB 19.92 trillion,accounting for 67.06%of the total size of the PE fund sector.“New Regulation on Asset Management”highlights difficulty in f

65、undraising,PE fund sector enters an adjustment periodIn 2018,the Peoples Bank of China,China Banking and Insurance Regulatory Commission,China Securities Regulatory Commission,and the State Administration of Foreign Exchange jointly published the Guiding Opinions on Regulating the Asset Management B

66、usiness of Finance Institutions,No.106 2018(New Regulation on Asset Management).The New Regulation on Asset Management focuses on eliminating rigid repayments,removing multi-layered nesting,prohibiting the“capital pool”model,and reducing structured lever.With restricted channels to inject banking an

67、d other subject funds,Chinas PE fund market has entered an accelerated adjustment period.However,with the capital side entrance becoming diverted,difficulty in fundraising has become a core issue.Since 2018,the number and size of fundraising events have demonstrated a downward trend(see Figure 4).So

68、urce:Bain&Companys AsiaPacific Private Equity Report 2022,data from AVCJ,excluding real estate and infrastructureFigure 2.Amount of PE investment in the Asia Pacific market(USD billion)49%23%125%47%116%102%138%152%88%46%129%143%2016-20 2020 2021Greater ChinaIndiaSouth KoreaJapanAustralia-New Zealand

69、Southeast Asia11x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022Figure 3.AUM of PE funds by category(quarterly data)Source:AMACFigure 4.Distribution of number and size of fundraising eventsSource:PEDATA202220200007201620159

70、0,00080,00070,00060,00050,00040,00030,00020,00010,00009,0008,0007,0006,0005,0004,0003,0002,0001,000020,8535,8398,1145,7575,9349,8498,12112,374 23,7173,764 58,74535,57031,71838,09942,7682,412 2,409 363 454 2,150 4,835 5,274 5,832 9,559 280 6,127 8,928 53,6262,866 1,2772,4457,404 98,71668%66%65%65%67%

71、100%90%80%70%60%0%2020 Q4 2021 Q1 2021 Q32021 Q42021 Q22022 Q1108,283107,720100,780104,705105,02818.49 25.00 48.1550.28 57,83820,84622,32842,97910,96910,22547,63053,94960,49163,0909.77 250,000200,000150,000100,00050,0000199,239169,578177,310189,002196,521202,70567%8,6328,1407,75125,31741.83 23,7079,

72、47716,90418,65701-Development and Status Quo of Foreign Private Equity in ChinaAUM of PE funds-Equity(RMB 00 million)AUM of PE funds-VC(RMB 00 million)AUM of PE funds-Securities(RMB 00 million)AUM of PE funds-Asset allocation(RMB 00 million)Times of fundraising(event)Amount of raised funds(RMB 00 mi

73、llion)AUM of PE funds-Others(RMB 00 million)AUM of PE funds-Total(RMB 00 million)Proportion of size of equity/VC funds by sector%12 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20221.1.3 Development Trend of PE Funds in ChinaWith the advancement of the market economy

74、and the development of multi-level capital market,PE has developed rapidly and will continue to expand.As the market enters a phase of higher quality development,the sector will reshuffle.According to AMACs China Private Equity Investment Fund Industry Development Report(2021),Chinas PE market will

75、exhibit the following development trends:1)Increasingly refined operation and management of fundsAccording to AMAC survey data,PE institutions using intermediary legal and financial services accounted for 76.54%and 68.81%,respectively,in 2020.This reflects increasing efficiency of industrial labor d

76、ivisions and the increasingly refined and specialized operation and management of funds.2)Continuous improvement of the Qualified Foreign Limited Partnership system and rising internationalizationSince 2018,the pace of Chinas financial opening up has quickened.The implementation of the Foreign Inves

77、tment Law and its related systems promoted the Qualified Foreign Limited Partnership(QFLP)to enter a rapid development period.As of August 2022,the number of QFLP pilot areas exceeds 20,including Shanghai,Beijing,Tianjin,Chongqing,Shenzhen,Guizhou,Pingtan of Fujian,Zhuhai,Guangzhou,Qingdao,Xiamen,Su

78、zhou,Hainan,Shenyang,Jinan,Nanning of Guangxi,Xiongan of Hebei,Wuxi,Nanjing,Hangzhou,Region Changes in policyBeijing Additional contractual model for QFLP funds.No requirement for registered capital,proportion of initial capital contribution,proportion of monetary contribution or time limit of capit

79、al contribution of management enterprise.Lower limit of size of single fund reduced from RMB 500 million to RMB 100 million.Cancellation of the provision that amount of foreign capital subscription shall not exceed 50%of the size of fund.Cancellation of the requirement that QFLP fund investment shou

80、ld be concentrated in key areas.Cancellation of QFLP business limits.Shanghai QFLP funds allowed to invest in targets such as preferred shares,private placement,convertible bonds,mezzanine fund,bad debt,FOF and S fund,and invest in listed companies through private placement.Shenzhen No requirement o

81、n the access threshold for QFLP management enterprises,investment enterprises and LPs.Double-GP fund structure opened up.GP allowed to separate from the manager under certain conditions.Investment in A-share semi primary market permitted.Hainan No limit on minimum registered capital or contribution

82、amount of QFLP management enterprises or QFLP funds,proportion of initial capital contribution,proportion of monetary contribution or time limit of capital subscription.Important changes in QFLP pilot policyand the Guangdong-Macao In-Depth Cooperation Zone in Hengqin.QFLP-related policy is primarily

83、 advanced through local pilot programs.As policy is improved and opened up,QFLP will become more convenient and a primary mode for foreign investment in domestic equity.3)Increasingly systematic regulation,more stringent compliance requirementsTo complement development,the PE fund industrys correspo

84、nding regulatory system has improved.Since 2018,the China Securities Regulatory Commission(CSRC)and AMAC have issued regulations and plans to regulate potential problems.Simultaneously,the construction of regulation and law enforcement is advancing,the internal self-discipline requirements have beco

85、me more stringent,and the compliance requirements have become more comprehensive and refined.4)Relaxed channels for investment and exitWith the gradual establishment of the multi-level capital market and the advancement of registration system reforms,exit channels have been broadened and enriched,ma

86、king it more convenient for PE funds to exit through the open market.AMAC statistics show that the secondary market has been on a steady increase in terms of the number and amount of transactions from 2020 to 2021,providing a new,important supplement to market liquidity Source:AMACs China Private Eq

87、uity Investment Fund Industry Development Report(2021).11 Source:AMACs“China Private Equity Investment Fund Industry Development Report(2021)”01-Development and Status Quo of Foreign Private Equity in China13x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20221.2.1 Statu

88、s Quo of Foreign PE Funds in ChinaDevelopment overview of foreign PE fundsForeign PE funds started to invest in China in 1993.They have taken shape over the last 30 years,and are now entering a phase of systematic operation,and demonstrating distinctive patterns.From the perspective of the fund sour

89、ce,foreign PE fund entities in Chinas investment market mainly include:Foreign:PE fund limited partners(LP)comprise one or more foreign entitiesJoint venture(JV):PE fund LP comprises foreign investmentBroadly speaking,foreign investment in these parts constitutes the overall behavior of foreign PE f

90、unds investing in China.Broadly speaking,the foreign investment in these parts constitutes the overall behavior of foreign PE funds investing in China.PEDATA statistics show that as of the first half of the 2022,the number of foreign PE funds totalled 801,including 259 JVs.The target amount of funds

91、 totaled USD 313.950 billion,and the target 1.2 Development of Foreign PE Funds in Chinaamount of JV PE funds totaled USD 83.065 billion(see Figure 5).Distribution of establishment time of foreign PE funds(see Figure 6)First phase(19922006):Foreign investors took the lead entering Chinas capital mar

92、ket.The domestic capital market was still in its infancy.As a result of related policy,foreign investors were encouraged to enter the Chinese market on a small scale,propelling the development of the domestic PE industry.Second phase(20072010):Adjustment and adaptation period.On the one hand,amid in

93、ternational financial turmoil,foreign funds underwent fluctuations as their business in China was encumbered by local business;on the other hand,with local PE institutions starting to grow,the PE market ecosystem became more enriched.Third phase(20102018):Rapid growth period.In 2012,the suspension o

94、f domestic A-share transactions caused many enterprises to list on the American stock market.Foreign PE funds seized this opportunity to engage in large-scale business layout in Figure 6.Number and amount of foreign PE funds,including joint ventures(JV)Figure 5.Distribution of foreign PE funds by ty

95、pe and number of capital compositionsSource:PEDATASource:PEDATA6005004003002001000300,000250,000200,000150,000100,00050,000025954283,065230,8862010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20228070605040302010040,00035,00030,00025,00020,00015,00010,0005,000058067422948402620121665117,5

96、2115,18326,44438,2404,72725629920,10815,27625,05914,06115,13101-Development and Status Quo of Foreign Private Equity in ChinaTarget amount of fund(USD/M)Number of fundsTarget amount of funds(USD/M)Number of funds(fund)14 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20

97、22China and grew rapidly in terms of number and amount.Fourth phase(20182022):Contracting and waiting.Affected by the regulatory dispute between the SEC and China,as well as COVID-19,Chinese assets found it difficult to exit the American market.Meanwhile,with the international macro-economy contract

98、ing,foreign PE funds with Chinese businesses dropped in number and amount.Distribution of foreign PE funds by typeForeign PE funds investing in China cover many fund types.They are mostly growth funds and VC investment funds,the combination of which accounts for more than 80%of the total.Statistics

99、show that growth funds and buyout funds account for a major proportion of foreign PE funds(see Figure 8).This is simultaneously affected by:Chinas provisions and guidance on the management of foreign investment;and Financial appeal as the main target of foreign investment in China,with clear guidanc

100、e on fund exit.Geographical distribution of foreign PE managers and investment projectsThe majority of foreign PE funds in China are registered in Beijing and Shanghai.Since the QFLP pilot program has expanded and the opening up area quota had increased,the number of foreign PE funds registered in H

101、ainan is increasing.In comparison to other regions,Beijing and Shanghai clearly benefit from first-mover advantages,mainly because of priority pilots,regional centers,increasing foreign capital,and capital market.These regions start early on QFLP and Qualified Domestic Investment Enterprise(QDIE)pil

102、ot programs.Moreover,Beijing and Shanghai are the regional economic centers of north and south China,respectively.They are attractive to many foreign headquarters or core offices and have active capital market,adjacent to the Shanghai Stock Exchange(SSE).Figure 7.Distribution of foreign PE funds by

103、type and number(Unit:fund)Figure 8.Distribution of foreign PE funds by type and amount(Unit:USD millions)Source:PEDATA.Foreign PE fund type statistics include JV funds.Source:PEDATA.Foreign PE fund type statistics include JV funds.01-Development and Status Quo of Foreign Private Equity in China15x|F

104、oreign Private Equity Funds In China-Guide to Market Entry and Operations 2022In terms of the distribution of investment projects(see Figure 10),foreign PE funds in China are concentrated in certain regions.According to PEDATA statistics,the investment projects of foreign PE funds in China are prima

105、rily concentrated in Beijing,Shanghai,and Guangdong province,followed by Zhejiang Province and Jiangsu Province.The number in Beijing and Shanghai totaled 2,324,accounting for half of the total in China.Despite differences in local regulatory policies,the penetration rate of foreign PE investment pr

106、ojects is still low in the current stage.01-Development and Status Quo of Foreign Private Equity in ChinaSource:PEDATAFigure 10.Geographical distribution of foreign PE investment projects in China by numberFigure 9.Distribution of foreign PE funds by registered officesSource:PEDATA.Since the measure

107、s of the Ministry of Commerce(MOC)and the State Administration of Foreign Exchange(SAFE)on the administration of fund registration and AMAC registration measures change over time,information on some funds is incomplete.16 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2

108、0221.2.2 Development Characteristics of Foreign PE Funds in ChinaSince its introduction to China in 1993,foreign PE funds have played an important role in raising and guiding social capital,developing real economy and promoting technological innovation.As China has gradually promoted the opening up

109、of its capital markets recently,foreign institutional investors are increasingly gaining access to Chinas capital market.Foreign PE funds exhibit different development characteristics at different stages.Based on the relevant statistics:Before 2014,single-foreign PE investment in China displayed an

110、overall upward trend.However,such investment started to drop after 2014 because China exited from its RMB 4 trillion stimulus plan,producing many PE institutions.Since 2014,local PE has maintained an explosive growth.JV has become an important option for foreign investment to engage in the PE fund b

111、usiness in China.The proportion of foreign investment through JV has started to rise.Cooperation between domestic and foreign institutions deepens gradually.As of the first half of 2022,the number of foreign PE investment projects(including JV)totaled 4,237,with a total investment(publicly known)exc

112、eeding USD 34 billion.Investment concentrated in expansion periodAfter 2018,multiple factors affected foreign PE investment in China started to decrease.In 2019,there were only 139 foreign PE investment projects,with a total investment of USD 1 billion.Foreign investment in China bucked the trend an

113、d registered obvious growth between 2020 and 2021.From the perspective of the distribution of the investment phase,in the expansion period,project assets continue to be the primary focus of foreign PE investment in China.This phases investment exceeds 50%of the total investment in the other phases.M

114、oreover,assets in the maturation period are also considered.In additional to regulatory factor,foreign PE asset allocation oriented toward mid-and late-phase assets is affected by the following factors:1)Predictable value on return:clearer market value of assets after the expansion period and exit p

115、ath,obvious value on return;2)Easy execution and operation:Foreign institutions prefer simple and clear execution structure and operation when compared to local institutions;factors involved in the growth of early assets are more complicated and require long-term follow-up,making it more difficult t

116、o execute;3)Regulatory factors and investment preference.Dominating market share of leading investment institutions,applicability of the 80/20 RulePEDATA statistics show that 488 foreign PE fund investment management institutions participated in 4,237 project market investment events.Investment tran

117、sactions are mostly made by leading investment institutions,based on the distribution of institutional investment by number.Three investment institutions make more than 100 investment transactions,and 452 investment transactions are completed;investment institutions that invest for more than ten tim

118、es account for 21.1%of the total,but the proportion of investment project times reaches up to 73.8%.1.2.3 Distribution of Foreign PE Investment in China by IndustriesOverview of industry distributionThe analysis of foreign PE investment events in China(including JV)between 2012 and 2022 reveals that

119、 biotechnology/healthcare,IT industry,and Internet are the top 3 industries over the past decade in terms of the proportion of foreign PE fund investment in China.Recently,with China attaching great importance to the semiconductor industry,foreign investment in the countrys semiconductor industry is

120、 rapidly increasing.01-Development and Status Quo of Foreign Private Equity in ChinaFigure 11.Distribution of foreign PE investment in China by number and amountSource:PEDATA2007 2008 20092001320142 0152016 2017 2018 20,0004,5004,0003,5003,0002,5002,0001,5001,0005000

121、5288170 1361174491,0251221,0009008007006005004003002003883Investment times(transaction)-JVInvestment times(transaction)-ForeignAmount of investment(USD/M)-JVAmount of investment(USD/M)-Foreign202217x|Foreign Private Equity Funds In China-Guide to Market En

122、try and Operations 2022Figure 12.Distribution of foreign PE investment in China by phasesSource:PEDATAFigure 13.Proportion of foreign PE fund investment times and number of institutionsFigure 14.Number of funds under management of foreign PE fund management institutionsFigure 15.Distribution of fore

123、ign PE fund investment in the past decade by industries Source:PEDATASource:PEDATASource:PEDATA0 3 6 9 12 15 18 5 5 5 5 6 6 6 6 6 6 7 7 7 8 9 10 10 10 11 15 300270240290603001,0009008007006005004003002001000(100+50,100)(30,50)(20,30)(10,20)(5,100,539245277653701,8001

124、,6001,4001,2001,000800600400200018,00016,00014,00012,00010,0008,0006,0004,0002,0000542,580966549081,7234052262,4374,16513,7266,7864943,05123512101-Development and Status Quo of Foreign Private Equity in ChinaSeed periodExpansion periodStart-up periodMaturation periodInvestment frequencyInvestment fr

125、equencyInvestment times(total)Number of foreign PE funds under management(fund)frequencyInvestment times(transaction)-JVInvestment times(transaction)-ForeignAmount of investment(USD/M)-JVAmount of investment(USD/M)-Foreign005006007008009002101213 15 16 27 44 49 51 53 53 66 70 74 102 121 1

126、24 154 516 568 79618 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20221.3.1 Summary of Important Policies Governing Foreign-invested Private FundsThe operation of foreign-invested PE investment funds should,on the whole,be conducted in accordance within the existing r

127、egulatory framework.The authorities have issued separate documents on,or specified in relevant documents,the market access,filing,registration and tax administration of foreign-invested funds.1.3 Overview of Development of Policies Governing Private FundsBased on regulatory documents,policies for th

128、e administration of foreign-invested private equity investment funds mainly focus on the following three aspects:Strengthening the onshore operation of foreign-invested PE investment funds;Strengthening the regulation of the capital flow of foreign-invested PE investment funds;and Strengthening regu

129、lations to prevent any the circumvention made by foreign-invested PE investment funds,in terms of industrial and foreign exchange administration policies.Document NameRelevant ContentForeign Investment Law of the Peoples Republic of ChinaArticle 4:“China adopts a management system of pre-establishme

130、nt national treatment and negative list for foreign investments.For the purpose of the foregoing sentence,the term“pre-establishment national treatment”means granting to foreign investors and their investments,at the stage of investment access,the treatment not less favorable than that granted to do

131、mestic investors and their investments;the term“negative list”means the special administrative measures for access with respect to the foreign investments in specific fields as stipulated by the State.China grants national treatment to foreign investments outside the negative list.”Implementing Regu

132、lations for the Foreign Investment Law of the Peoples Republic of China(State Council Order No.723)Article 19:“A local peoples government at or above the county level may,in accordance with the law,administrative regulations and local regulations and within its statutory authority,formulate foreign

133、investment promotion and facilitation policies and measures with respect to,among other things,reduction and exemption of fees and expenses,guarantee of land use,and provision of public services.The foreign investment promotion and facilitation policies and measures formulated by a local peoples gov

134、ernment at or above the county level shall be aimed at promoting high-quality development,be conducive to the improvement of economic,social and ecological benefits,and be conducive to the continuous optimization of the environment for foreign investments.”Opinions of the State Council on Further Do

135、ing a Good Job in the Utilization of Foreign InvestmentsArticle 10:“Foreign-invested enterprises are encouraged to use their capital to make domestic equity investments in accordance with the law.”Interim Measures for the Supervision and Administration of Private Investment Funds(CSRC Order No.105)A

136、rticle 7:“The managers of various types of private funds shall apply for registration with the AMAC pursuant to the requirements of the AMAC”;Article 8:“Upon completion of the fundraising of a private fund of whatsoever type,the fund manager shall go through the formalities for fund filing pursuant

137、to the requirements of the AMAC”.Several Provisions on Strengthening the Regulation of Private Investment Funds(CSRC Announcement 2020 No.71)Article 3:“A private fund manager shall include as a part of its name the words“private fund”,“private fund management”or“venture capital”.”Relevant Documents

138、Regulating Foreign-invested Private Equity Investment Funds01-Development and Status Quo of Foreign Private Equity in China19x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022Special Administrative Measures(Negative List)for the Entry of Foreign InvestmentsPrivate equi

139、ty funds will be restricted from investing in such sectors the foreign investments in which are prohibited or restricted as set forth in the list.Several Provisions on Strengthening the Regulation of Private Investment FundsThe provisions further reiterate and intensify the bottom line for the opera

140、tion of the private fund industry,and imposes a prohibitive requirement of“Ten Donts”on private fund managers and fund practitioners,among others.Notice on the Submission of CRS Annual Report for 2020 through AMBERS SystemAccording to the requirements of the State Taxation Administration(STA),the As

141、set Management Association of China(AMAC)has added a function of“CRS Annual Report”to the Asset Management Business Electronic Registration System,which went live on May 28,2021.Circular of Shenzhen Municipal Local Financial Regulatory Bureau on Issuing the Measures for the Pilot Program of Foreign-

142、invested Equity Investment EnterprisesArticle 15:Foreign-invested equity investment management enterprises and foreign-invested equity investment enterprises shall go through the formalities for registration as a private fund manager and filing as a private fund with the AMAC,and no foreign-invested

143、 equity investment management enterprise may actually carry out its operations until it has completed the registration as a fund manager.The Municipal Local Financial Regulatory Bureau will work with the relevant authorities and entities to regularly make public the information on the registration o

144、f private fund managers and filing of private funds by the enterprises participating in the pilot program.Opinions on Providing Financial Policy Support for the Development of the Guangdong-Hong Kong-Macao Greater Bay Area(Yin Fa 2020 No.95)Article 15:“Carrying out the pilot program of cross-border

145、investments by private equity investment funds.Institutional investors from Hong Kong and Macao will be permitted to invest in the PE investment funds and VC enterprises(funds)set up in the Mainland areas of the Greater Bay Area through the QFLP regime.Source:prepared based on the publicly available

146、 information1.3.2 Trends in the Regulation of Market Access Qualification of Foreign-invested Institutions In recent years,amid the opening-up of the financial industry,the regulatory authorities and self-disciplinary organizations for private funds in China have been promoting the opening-up of the

147、 private fund management industry,so as to attract more institutions with foreign investment background to China,introduce advanced overseas management experience,and provide more investment and asset management options for domestic investors to engage in overseas investments.On the one hand,the Chi

148、nese government has been promoting the opening-up by gradually expanding the financial sector from the pilot regions,encouraging foreign-invested private fund managers to enter the Chinese market and providing convenient options for investment and operation in China.On the other hand,the Chinese gov

149、ernment is adhering to the principle of financial prudence,and emphasizes that opening-up shall achieve two objectives,namely,serving the real economy and guarding against systemic risk,and that market access qualifications will be granted only to select high-quality institutions.2 Mr.Pan Gongsheng,

150、Deputy Governor of the Peoples Bank of China and Director of the SAFE,said in the 2021 Lujiazui Forum that“the recent reform and opening-up of the foreign exchange sector will be to promote the reform with respect to the cross-border investments by private equity investment funds,to support private

151、equity investment funds to make cross-border industrial and real-economy investments,and to promote the Qualified Domestic Limited Partner(QDLP)and Qualified Foreign Limited Partner(QFLP)pilot programs in order to help Shanghai become an important global market for wealth management and asset manage

152、ment.”(at http:/ Article 13 of the Interim Measures of Hainan Province for Domestic Equity Investments by Qualified Foreign Limited Partner(QFLP):“equity investment management enterprises shall be registered in accordance with the following procedures:(1)the relevant functional departments directly

153、administered by Hainan Province,the peoples governments at the city(county)level(or the financial administration agencies at the same level authorized by them),and the administration commissions of key industrial parks will issue letters of recommendation for the equity investment management enterpr

154、ises to Hainan Provincial Administration for Market Regulation,with a copy to Hainan Provincial Local Financial Regulatory Bureau”Article 18:“equity investment enterprises shall be registered in accordance with the following procedures:(1)the relevant functional departments directly administered by

155、Hainan Province,the peoples governments at the city(county)level(or the financial administration agencies at the same level authorized by them),and the administration commissions of key industrial parks will issue letters of recommendation for the equity investment enterprises to Hainan Provincial A

156、dministration for Market Regulation,with a copy to Hainan Provincial Local Financial Regulatory Bureau”4 Article 5 of the Interim Measures of Nanning Area of China(Guangxi)Pilot Free Trade Zone for Promoting the Development of Foreign-invested Equity Investment Enterprises:“if the foreign exchange a

157、dministration authority or another administrative agency requires,in accordance with the laws and regulations,a foreign-invested equity investment enterprise to provide a recommendation document,the foreign-invested equity investment enterprise may apply to the Administration Commission of Nanning A

158、rea of China(Guangxi)Pilot Free Trade Zone(the“Nanning Area Administration Commission”)for the recommendation document by submitting the materials as detailed in the list attached hereto.Upon receipt of all application materials,the New Economy Development Bureau(Financial Innovation Bureau)of the N

159、anning Area Administration Commission shall make a decision as to whether or not to make the recommendation within 5 working days.”The key pilot program policies for private equity investment funds making cross-border investments in industries and real economy include:1.the Qualified Foreign Limited

160、 Partner(QFLP)regime:after obtaining the QFLP pilot qualification,private fund managers may establish private equity funds in the form of a partnership with foreign currency capital contributions and make investments in the domestic market;2.the Qualified Domestic Limited Partner(QDLP)regime:private

161、 fund managers may conduct fundraising domestically in a non-public manner subject to the approved foreign exchange quota and make investments in overseas markets.Through the process of opening-up,the policies for the two pilot programs are gradually making breakthroughs and innovations.Set forth be

162、low in this section are the status and trends of the policies for the pilot programs,and the detailed provisions and requirements of those policies will be outlined in subsequent sections.2Mr.Pan Gongsheng,Deputy Governor of the Peoples Bank of China and Director of the SAFE,said in the 2021 Lujiazu

163、i Forum that“the recent reform and opening-up of the foreign 01-Development and Status Quo of Foreign Private Equity in China20 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022exchange sector will be to promote the reform with respect to the cross-border investments

164、by private equity investment funds,to support private equity investment funds to make cross-border industrial and real-economy investments,and to promote the Qualified Domestic Limited Partner(QDLP)and Qualified Foreign Limited Partner(QFLP)pilot programs in order to help Shanghai become an importan

165、t global market for wealth management and asset management.”(at http:/ Developments in QFLP Policies1)Simplified Approval ProceduresDue to the non-full-opening of Chinas capital account and its foreign exchange control,many authorities are involved in the approval procedures of the QFLP pilot progra

166、m,such as local financial offices,development and reform commissions,commissions of commerce,administrations for market regulation(AMR),the Peoples Bank of China(PBOC)and State Administration of Foreign Exchange(SAFE).The approach of one-stop approval is adopted in most of the pilot regions,and work

167、ing groups,task forces,joint meetings or filing offices are usually established to be in charge of coordinating the QFLP review and approval by various authorities.Once approved by the working groups or joint meetings,applicants may proceed with AMR registration,opening of accounts and selection of

168、the custodian bank.The approval procedures in some pilot regions have recently been simplified,and the original approval regime has been replaced by a recommendation regime.For example,letters of recommendation are adopted in the pilot areas in Hainan,and any of the relevant functional departments d

169、irectly administered by Hainan Province,the Peoples Governments at the city/county level(or the financial administration agencies at the same level authorized by them),and the administration commissions of key industrial parks may issue letters of recommendation for QFLP fund managers and QFLP funds

170、 to Hainan Provincial Administration for Market Regulation,with a copy to Hainan Provincial Local Financial Regulatory Bureau3 In the pilot areas of Guangxi Province,the New Economy Development Bureau(Financial Innovation Bureau)of the Nanning Area Administration Commission may issue statements of r

171、ecommendation.4 2)More Flexible Fundraising StructuresIn addition to the initial structure of“foreign manager for foreign investors”(wherein both the QFLP manager and the QFLP fund are open to qualified overseas shareholders or investors),new fundraising structures have been developed under the QFLP

172、 pilot program,namely the structure of“foreign manager for domestic investors”(wherein the QFLP fund is open to qualified domestic investors)and“domestic manager for foreign investors”(wherein the QFLP manager is open to qualified domestic investors),providing more options for overseas investors.The

173、 latest policies in Shenzhen,Hainan and Shanghai expressly allow QFLP funds to choose from the above three structures according to their actual needs.Foreign manager for domestic investorsDomestic manager for foreign investorsForeign manager for foreign investorsFigure 16.Common Fundraising Structur

174、esOverseas shareholderQFLP manager WFOE(GP)Qualified overseas investors(LPs)Portfolio companies OverseasFund manager DomesticQFLP fundQFLP manager WFOE(GP)Qualified domestic investorsQualified overseas investorsPortfolio companies Overseas DomesticQFLP fundFund managerOverseas shareholderQFLP manage

175、r WFOE(GP)Qualified domestic investorsPortfolio companiesOverseasFund manager DomesticQFLP fund01-Development and Status Quo of Foreign Private Equity in China21x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022More diversified fundraising structures mean that domestic

176、 GPs can be appointed to manage QFLP funds raising capital from overseas investors,and overseas GPs can be appointed to manage private funds raising capital from domestic investors.This expands the scope of fundraising and offers more asset management options to investors.3)Relaxed qualification req

177、uirements for fund managers/fundsCurrently,pilot program policies in most cities have set a threshold for the registered capital of both fund managers and funds.The threshold for the total capital commitments of a QFLP fund in most of the pilot cities ranges from USD 6 to 15 million,and capital cont

178、ributions are required to be made in cash.Promulgated onPromulgated byDocument Name Main ContentsMay 14,2021General Office of Shanghai Municipal Peoples GovernmentSeveral Opinions on Accelerating the Development of Shanghai as Global Asset Management Center(Hu Fu Ban Gui 2021 No.6)Institutions posse

179、ssing QFLP pilot qualifications will be encouraged to invest in the equity interests of domestic non-listed companies,private placements of listed companies,mezzanine funds,special assets,private equity and venture capital funds,etc.March 30,2021PBOC,China Banking and Insurance Regulatory Commission

180、(CBIRC),CSRC and SAFEOpinions on Providing Financial Policy Support for Comprehensively Deepening Reform and Opening-up in Hainan(Yin Fa 2021 No.84)Provided that risks are controllable,QFLP in the Hainan Free Trade Port will be allowed to freely remit funds out of and into China under the balance ma

181、nagement model,and the foreign exchange registration procedures therefore will be simplified.The Hainan Free Trade Port will be included in the QDLP pilot program,and will be given a basic quota under the QDLP pilot program,and may be granted additional QDLP quotas each year in accordance with certa

182、in rules.April 24,2020PBOC,CBIRC,CSRC and SAFEOpinions on Providing Financial Policy Support for the Development of the Guangdong-Hong Kong-Macao Greater Bay Area(Yin Fa 2020 No.95)Carrying out the pilot program of cross-border investments by private equity investment funds.Institutional investors f

183、rom Hong Kong and Macao will be allowed to invest in private equity investment funds and venture capital enterprises(funds)set up in the Mainland areas of the Greater Bay Area through the QFLP regime.The QDLP and QDIE pilot programs will be implemented in an orderly manner to support domestic privat

184、e equity investment funds to make overseas investments.hathe qualification requirements for QFLP managers/funds have significantly relaxed in some pilot regions.For example,in Hainan,there are no special requirements for the registered capital of a QFLP fund manager,or for the size of capital commit

185、ments,restrictions on capital contribution and investor qualification of a QFLP fund,which is one of the obvious advantages of the QFLP policies in Hainan compared to other regions.National and regional economic strategies have recently touched on QFLP policies.Under the Opinions on Accelerating the

186、 Development of Shanghai as Global Asset Management Center issued by the Shanghai municipal government,QFLP funds are explicitly encouraged to make more diversified investments.The gradual relaxation of the scope will increase flexibility for foreign investors making investments through QFLP funds.1

187、)Fund of Funds(FOF)Under the FOF model,not all the capital of a QFLP fund invested in by foreign investors(LPs)will be used to make direct equity investments.Instead,some of the capital may be invested in 4)Broader Scope of Investment funds.An advantage of this model is that QFLP funds have better a

188、sset allocation capabilities from the perspective of foreign investors.Since they can invest in diversified assets by means of both direct and indirect equity investments,the ability to bear risks is enhanced.A QFLP fund may directly pay the RMB proceeds converted from other currencies to the RMB ac

189、count of a sub-fund,and the sub-fund may freely use the proceeds to make investments.In Beijing5,Shenzhen6 and other regions,QFLP funds have been permitted to operate as FOFs.However,based on our observations,regulatory authorities may impose restrictions on the proportion of the investments of a QF

190、LP fund in sub-funds.QFLP fund managers are advised to communicate with authorities on a case-by-case basis.Restrictions still exist on the operation of QFLP funds as FOFs in certain pilot regions.For example,in Qingdao,QFLP funds are expressly prohibited from making investments as FOFs.01-Developme

191、nt and Status Quo of Foreign Private Equity in China22 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022inconsistency between such investments and the strategies permitted by the CSRC and AMAC.However,certain pilot regions have relaxed their restrictions.For example,t

192、he policies of Beijing7,Guangxi province8 and other regions permit QFLP funds to invest in NPLs,while Hainan has developed a negative list and does not restrict QFLP funds from making special opportunity investments.Due to the lack of clear rules at the current stage,whether the QFLP funds establish

193、ed in Beijing,Guangxi Province and other relevant regions can be successfully filed are still subject to the requirements of the AMAC.It remains to be seen how the QFLP pilot program rules and AMAC self-disciplinary rules will be coordinated and how special opportunity investments will be rendered c

194、ompatible with the private fund regulatory regime.Based on the current policies,the development is going in the direction of more simplified procedures,lower thresholds,expanded scope of investments,and increasingly flexible exit paths.1.3.2.2 Breakthroughs of the QDLP Pilot ProgramQDLP is a popular

195、 form for foreign-invested asset management companies to carry out business operations in China.Since the pilot program launched in 2013,many internationally renowned institutions have been attracted to Shanghai,forming a good synergistic effect with the wholly foreign owned enterprise securities-ty

196、pe private fund managers(“WFOE PFMs”).Despite the effects of COVID-19 in the second quarter of 2022,the SFRB has been pushing ahead with various innovations and 2)S Fund S Funds,also known as private equity secondary market funds,are private equity funds established for the sole purpose of purchasin

197、g fund units or investment portfolios to be sold by a transferor.They differ from traditional private equity funds,which directly invest in the equity interests in specific companies by way of capital increase or purchase of existing equity interests.The main investment strategy of a S Fund is to pu

198、rchase from the transferor the fund units held by it that usually correspond to multiple underlying portfolio assets.Some S Funds purchase equity interests in multiple portfolio companies directly from the transferor in a single transaction.The latter type of S Fund is usually referred to as a conti

199、nuation fund.After the fundraising period of a RMB fund ends,secondary transactions become a main source of quality assets.Operating a QFLP fund as an S Fund can provide more diversified asset allocation channels and enable QFLP fund managers to seek more investment opportunities for overseas invest

200、ors.There have been several successful“QFLP+S”precedents in the market.For example,Hamilton Lane was approved by the Shanghai Municipal Local Financial Regulatory Bureau(“SFRB”)as the first institution in Shanghai to set up a S Fund under the QFLP pilot program,and IDG established the first“QFLP+S”f

201、und in Wuxi,named Wuxi Baoyi Equity Investment Partnership(LP).3)Special Opportunity InvestmentsMost pilot regions prohibit QFLP funds from investing in debts and non-performing loans(NPLs),primarily because of the 5 Article 14 of the Interim Measures for the Qualified Foreign Limited Partner Pilot

202、Program in Beijing:“the overseas capital raised by a fund under the pilot program may be used to:;(4)make investments in domestic private investment funds.”6 Article 11 of the Measures of Shenzhen for the Pilot Program of Foreign-invested Equity Investment Enterprises:“foreign-invested equity invest

203、ment enterprises may invest in domestic private equity and venture capital funds,and shall comply with the relevant provisions of the PRC laws,regulations and rules on foreign investments,and the private equity and venture capital funds in which they have invested are encouraged to directly invest i

204、n the enterprises engaged in the real economy.”7 Article 14 of the Interim Measures for the Qualified Foreign Limited Partner Pilot Program in Beijing:“the overseas capital raised by a fund under the pilot program may be used to:;(3)make mezzanine investments and investments in non-performing loans.

205、”8 Article 11 of the Interim Measures of Nanning Area of China(Guangxi)Pilot Free Trade Zone on Promoting the Development of Foreign-invested Equity Investment Enterprises:“foreign-invested equity investment enterprises will be supported to:;(v)invest in non-performing loans by such means as market-

206、oriented debt-for-equity swaps.”01-Development and Status Quo of Foreign Private Equity in China23x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20229 Recently,the applications for additional quotas filed by several institutions have been approved by the SFRB.For exampl

207、e,Credit Suisse Investment,PIMCO Investment and UBP Investment,all of which are institutions participating in QDLP pilot program,have been granted additional quotas of USD 200 million,USD 200 million and USD 100 million respectively,and the total amount of their quotas has reached USD 400 million,US

208、D 400 million and USD 150 million respectively;SIG China and Xin Jing Investment,both of which are institutions participating in QFLP pilot program,have been granted additional quotas of USD 70 million and USD 500 million respectively,and the total amount of their approved quotas has reached USD 700

209、 million and USD 1 billion respectively.In addition,Neuberger Berman,Oaktree and certain other institutions are planning to apply for additional quotas.pilot programs involving the cross-border capital flow and the registration of foreign-invested asset management institutions in Shanghai.1)Public f

210、und managers may participate in the QDLP pilot program.BlackRock China Fund Management was approved by the SFRB as the first wholly foreign-owned public fund management company(“FMC”)to participate in the QDLP pilot program.The QDLP business of FMCs does not conflict with their main business and cou

211、ld effectively supplement their QDII business and both the QDII and QDLP quotas need to be approved by the SAFE.However,since FMCs are under stringent regulation by the CSRC,they must not only satisfy the requirements of the QDLP pilot program,but also must be endorsed by the CSRC,and,in certain cas

212、es,may be required to meet the QDII requirements to receive the QDLP qualification.The BlackRock case was the first case wherein a newly established FMC was granted a QDLP qualification without first obtaining a QDII qualification.In general,most asset management institutions approved to participate

213、 in the QDLP pilot program are private fund managers.Thanks to the coordination of the SFRB,the CSRC gave its support to BlackRock China Fund Management,as a newly established,wholly foreign-owned FMC,which undoubtedly sets a precedent for others looking to apply for a QDLP qualification.2)WFOE PFMs

214、 may simultaneously conduct QDLP business.The SFRB approved AZ Investment Management as the first case in China to be permitted as a single legal entity to conduct both WFOE PFM and QDLP business.With the support of the CSRC,QDLP and WFOE PFM businesses have been approved for the first time in Shang

215、hai,as the city with the largest number of WFOE PFMs,to be carried out by the same legal entity,without having to establish two entities.This will save the domestic managers costs and resources for participating in the QDLP pilot program,improve efficiency,and help attract leading foreign asset mana

216、gement institutions to Shanghai.3)The QDLP quota granted to a single manager has been significantly increased.The Shanghai government has a pragmatic and flexible attitude towards the application for QDLP quota by a single manager.Though the quota approved under the initial application may not be hi

217、gh(i.e.,USD 50 million),institutions that have already been granted and are using their QDLP quotas can make multiple applications for additional quotas based on their needs Recently,the applications for additional quotas filed by several institutions have been approved by the SFRB.For example,Credi

218、t Suisse Investment,PIMCO Investment and UBP Investment,all of which are institutions participating in QDLP pilot program,have been granted additional quotas of USD 200 million,USD 200 million and USD 100 million respectively,and the total amount of their quotas has reached USD 400 million,USD 400 m

219、illion and USD 150 million respectively;SIG China and Xin Jing Investment,both of which are institutions participating in QFLP pilot program,have been granted additional quotas of USD 70 million and USD 500 million respectively,and the total amount of their approved quotas has reached USD 700 millio

220、n and USD 1 billion respectively.In addition,Neuberger Berman,Oaktree and certain other institutions are planning to apply for additional quotas9.There has been a significant increase in the total amount of the QDLP quota approved for a single institution,which will help cover the costs develop the

221、QDLP business.01-Development and Status Quo of Foreign Private Equity in China24 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 202202Market Entry for Foreign-Invested Private Funds in China25x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2

222、0222.1.1 CharacteristicsPrivate funds(PF)are“investment funds established for fundraising from investors in a non-public manner”,and their“assets are managed by the fund managers or general partners”and“for the purpose of investment activities”.11In the field of PFs,the distinctions between PE funds

223、(including VC funds)and private securities funds are as follows:1)Investment Target:The difference between the investment scope of PE funds and that of private securities funds lies in whether the investment target is publicly issued and traded,i.e.,the primary and secondary markets.122)Closed-end O

224、peration:PE funds usually require closed-end operation,and no new subscription is allowed after the product closing is consummated,except for the follow-up fundraising that meets specific requirements.Private securities funds do not require closed-end operation.3)Exit Approach:The investment target

225、of PE funds is primarily marketable securities that can be traded publicly.Their exit approach involves selling stocks and other marketable securities.The investment target of PE funds is mainly equities of non-listed companies.Their exit approaches are exit after re-purchase,after liquidation,and a

226、fter equity transfer,among others.2.1.2 Common Organizational Forms of PFsIn accordance with applicable laws and regulations,PE funds in China can take the following three forms:company-type,limited-partnership-type,and contract-type.Company-type FundsA company-type fund is a fund that exists contin

227、ually in the form of a company and is established on the basis of the PRC Company Law.The investors of such a fund are the shareholders 2.1 Overview of PE/VC Funds10of the company and enjoy the rights and assume responsibilities as shareholders in accordance with laws by virtue of the number of shar

228、es they hold in the Company.Pros:The corporate structure has a long-lasting and more robust legal environment,which can minimize operating risks;The fund enjoys higher stability,as equity transfers and personnel changes have no direct impact on the fund;The company is an independent legal entity,whi

229、ch can raise funds through borrowing;Due to the tax incentives provided under national policies,most of VC funds prefer the corporate structure;and Corporate structure is suited to mature companies that have long-term shareholding plans.Cons:As the investors are shareholders,they can appoint and sup

230、ervise fund managers through the shareholders assembly(shareholders meeting)and the board of directors(executive director),which may influence the managers decision-making;The company may run with less flexibility in terms of self-management as its business operation and management shall comply with

231、 the PRC Company Law,which poses clearer and more specific constraints on the company;and The tax burden on the shareholders upon their exit is high.Limited-Partnership-type FundsA limited-partnership(LP)-type fund is a fund that exists continually in the form of a limited partnership and has at lea

232、st one general partner and at least one limited partner.The limited partners do not participate in the operation of the limited partnership,do not represent the organization externally,only enjoy the profit distribution pro rata pursuant to the partnership agreement,and are liable for the partnershi

233、ps debts to the extent limited 10 For the avoidance of doubt,unless otherwise specified,the PFs/PE funds in this Guide refer to the private equity investment funds and venture capital funds under the fund product filing type of the AMAC.11 Article 2 of the Interim Measures for the Supervision and Ad

234、ministration of Private Investment Funds issued by the CSRC:For the purpose of these Measures,the term“private investment funds”(hereinafter referred to as the“PFs”)refer to investment funds established,in the territory of the Peoples Republic of China,for raising funds from investors in a non-publi

235、c manner.Article 2 of the Measures for the Registration of Private Investment Fund Managers and the Filing of Funds(for the Trial Implementation)released by the AMAC:For the purpose of these Measures,the term“private investment funds”(hereinafter referred to as the“PFs”)refer to investment funds est

236、ablished for raising funds from qualified investors in a non-public manner,including companies or partnerships who are established for the purpose of investment activities and whose assets are managed by fund managers or general partners.12 See the Description of“Business Types/Fund Types”and“Produc

237、t Types”of Private Investment Funds:(1)Private securities investment funds,a.k.a.private securities funds,which mainly invest in publicly traded stocks,bonds,futures,options,fund shares,and other securities and their derivatives specified by the CSRC;(2)Venture capital funds,i.e.,VC funds,which main

238、ly make equity investments into unlisted growth companies at various stages of entrepreneurship(NEEQ listed companies are regarded as unlisted companies;and(3)Private equity investment funds,i.e.,PE funds,which refer to private funds whose investments include,inter alia,non-publicly issued and trade

239、d common stocks,preferred stocks that can be converted into common stocks,and convertible bonds,of unlisted companies and listed companies(including,without limitation,private placements,block trading and agreement-based transfers of listed companies).02-Market Entry for Foreign-Invested Private Fun

240、ds in China26 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022by their respective capital contributions.The general partners participate in the management of the partnerships affairs,share the partnerships incomes,and assume unlimited liability or joint and several l

241、iability towards the partnerships liabilities.Pros:Separation of management right and ownership:The general partners assume unlimited liability or joint and several liability and are responsible for the management and decision-making on investment and other critical matters,while the limited partner

242、s are responsible for debts to the extent limited by their respective capital contributions and do not participate in decision-making on investment;Flexible financing structure:By virtue of the partnership agreement,the partners hand over funds to the fund manager only if and when the fund has selec

243、ted investment projects and needs investments,which can maximize the time efficiency of the fund;Flexible for the investors to adjust;Flexible distribution and organization mechanism:Different investors can be assigned under the same fund according to different projects which are accounted independe

244、ntly,and investors with different priorities can also be assigned under the same one project.At the partnership fund level,the partners can distribute incomes at any time,and can agree on the distribution scope and distribution amount,while shall the company type be adopted,the distribution to the s

245、hareholders could not be made unless and until the fund as a whole is profitable;and Double taxation can be avoided,as the partnership is not subject to corporate income tax,while the partners are liable for paying taxes.Cons:Investors rights under the LP-type funds are relatively weaker than those

246、under the company-type funds.As the capital injection time and payment percentage of the funds are freely agreed,if the subsequent funds cannot be paid in time,the risk for the LP-type funds to be unable to operate normally is higher than that for the company-type funds.The tax rate is uncertain upo

247、n exit.Taxation lowland planning might not be suitable for long-term shareholding platforms.Contract-type FundsA contract-type fund is a fund that exists continually in the form of a fund contract and is established on the basis of the fund contract executed by and among the fund investor(s),the fun

248、d manager and the fund custodian.The rights and obligations of each party are specified in the clauses of the fund contract.Pros:The trust properties are relatively independent,and the investment management and operation of the contract-type funds are free from the intervention of the investors and

249、beneficiaries.A contract-type fund is not a legal entity but a channel for capital flow,which can effectively avoid double taxation,and the income taxes are directly borne by the beneficiaries,which minimizes tax costs.Contract-type funds are not required to register themselves as special organizati

250、ons/entities,and the transaction and operating costs are low.Flexible exit and entry can be achieved by virtue of special covenants under the trust contract.02-Market Entry for Foreign-Invested Private Funds in China27x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022C

251、ons:According to the requirements of the CSRC,the trust-contract-type shareholders of a company to be listed must be cleared up during the IPO process,which becomes an obstacle for investors to exit via IPO.As a trust contract is not a standardized contract,its transfer procedures are complicated an

252、d its liquidity in the secondary market is poor.There are no effective restraints in operation of trust-contract-based investment funds on fund managers,which might cause the fund to be exposed to certain moral risks.2.1.3 Regulatory Authorities13PFs adopt the principles of appropriate supervision a

253、nd bottom-line supervision.The China Securities Reregulation Commission(CSRC)imposes administrative regulation on PE funds in accordance with the Interim Measures for the Supervision and Administration of Private Investment Funds and other departmental rules and normative documents.The Asset Managem

254、ent Association of China(AMAC)effects self-discipline management of the member institutions of the AMAC in accordance with its self-discipline rules.1)CSRCAs the regulatory authority of PE funds,the administrative regulation of the CSRC mainly focuses on,inter alia,the registration and filing of fun

255、d managers and funds,fundraising,investment operations,and information disclosure.In April 2014,the CSRC set up a Department of Private Fund Supervision(currently,the Department of Market Supervision II in the CSRC)responsible for the supervision and administration of PFs(special-type PFs).Departmen

256、tal rules and normative documents:the Interim Measures for the Supervision and Administration of Private Investment Funds(CSRC Decree No.105),the Measures for the Administration of Suitability of Investors of Securities and Futures(CSRC Decree No.130),the Several Provisions on Strengthening the Regu

257、lation of Private Investment Funds(CSRC Announcement 2020 No.71).2)AMACAs authorized under the Interim Measures for the Supervision and Administration of Private Investment Funds and the CSRC,the AMAC has successively formulated a series of self-disciplinary rules in terms of,inter alia,registration

258、 of the PFMs,filings of the PFs,entitlement of practicing qualifications and registration of practitioners,outsourcing service business,and information disclosure:Measures for the Registration of Private Investment Fund Managers and the Filing of Fund(for Trial Implementation),Guidelines for Interna

259、l Control of Private Investment Fund Managers,Measures for the Administration of Information Disclosure by Private Investment Funds,Measures for the Administration of Fundraising by Private Investment Funds,the Guidelines for Private Investment Fund Contracts(No.1-3),Measures for the Administration

260、of Service Businesses of Private Investment Funds(for Trial Implementation),Guidelines for Implementing the Administration of the Suitability of Investors of Fundraising Institutions(for Trial Implementation).13 As only PE-type funds are discussed in this whitepaper,the PRC Securities Law and Securi

261、ties Investment Fund Law are not included in the list.02-Market Entry for Foreign-Invested Private Funds in China28 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022“3-in-1”and systematic construction having achieved initial successThe administration and operation of

262、PE investment funds in China are mainly carried out under the“3-in-1”framework composed of the NPC/State Council,CSRC and AMAC.For specific matters such as funds registration,filing,internal management and investment operations,there exists a systematic regulatory and guidance framework.02-Market En

263、try for Foreign-Invested Private Funds in ChinaRegulatory FrameworkFigure 17.Regulatory and self-disciplinary framework-for PE investment fundsFramework of Regulatory and Self-Regulation System for PE Investment FundsNPCState CouncilCSRC I(Central and Local leve s)AMACOther Authorities MeasuresGuide

264、lines NDRC SAFE Q5AsMOFCOMSecurities Investment Fund Law of the Peoples Republic of ChinaMeasures for the Administration of Fundraising by Private InvestmentFundsGuidelines for Internal Control of Private Investment Fund ManagersInterim Regulations on the Administration of PrivateInvestment Funds(Co

265、nsultation Paper)Measures for theRe git raton of Priate Investment Fund Managers and the Fling of FundsInstructions for Registration of Private Investment Fund Managers(2018.12)Interim Measures for the Supervision and Administrationof Private Investment FundsMeasures for the Administration of Servic

266、e Businesses of PrivateOthersInterim Provisions on the Administration of the Operation of the Private AssetManagement Business of Securities/futures business InstitutionsInvestment Funds Measures for the Administration of Information Disclosure by Private Investment FundsForeign-related businessesMe

267、asures for the Suit ablityof Investors of Securities and FuturesGuidelines for Private Investment Fund ContractsIndustry guidanceIndustry guidance，as related to market entryThe domestic business development of foreign PE investment funds is also regulated by authorities and some local normative docu

268、ments for the reasons of,inter alia,source of funds and fund structure,including:SAFE:mainly involving capital operations;Local AMR:focusing on market entry;and Local QFLP Guidance Documents:related to the landing and operation of such funds.29x|Foreign Private Equity Funds In China-Guide to Market

269、Entry and Operations 20222.2 Registration of PFMs14All types of PFMs established in China(including foreign-invested PF management institutions in China)shall apply to the AMAC for registration in accordance with regulations and complete filing for the PE funds managed under their names.2.2.1 Regist

270、ration RequirementsThe Measures for the Registration of Private Investment Fund Managers and the Filing of Funds(for the Trial Implementation),the Announcement on the Several Issues of Further Regulating the Registration of Private Fund Managers,the Instructions for the Registration of Private Inves

271、tment Fund Managers,the Questions and Answers regarding the Registration and Filing of Private Funds,the Notice on Matters Related to the Registration and Filing of Private Fund Managers and other regulations released by the AMAC have made detailed provisions on the registration requirements for PFM

272、s,which are summarized as follows:ItemBrief SummaryName and business scope The name and business scope of a PFM shall meet regulatory requirements.Registered capital The applicant institution shall ensure that it has sufficient paid-in capital to secure its own effective operation.If the paid-up cap

273、ital of a PFM is less than 25%of the registered capital,the AMAC will post a special reminder in the public information of the PFM.Premise The total number of full-time employees of the applicant institution shall not be less than 5,and the general employees of the applicant institution shall not be

274、 in concurrent jobs.Employees of the applicant institution may not engage in activities that may pose any conflict of interest with private fund business.Employees The total number of full-time employees of the applicant institution shall not be less than 5,and the general employees of the applicant

275、 institution shall not be in concurrent jobs.Employees of the applicant institution may not engage in activities that may pose any conflict of interest with private fund business.Senior executives In the various types of the PFMs engaged in non-private securities investment fund business,at least 2

276、of their senior executives shall obtain fund practice qualifications,their legal representatives/executive partners(designated representatives)and compliance/risk control officer shall obtain fund practice qualification.The compliance/risk control officers of various types of the PFMs may not engage

277、 in investment business.No part-time jobs in any non-affiliated PE institutions or any institutions with conflicting business with PE business are allowed.Senior executives shall have more than 3 years of work experience related to the proposed position and have management experience and operational

278、 management capabilities suitable for the proposed position.14 Source:Tricors“China Hedge Fund Report 2022”P15-1802-Market Entry for Foreign-Invested Private Funds in China30 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022Professional operation The applicant institu

279、tion shall have a clear main business and may not concurrently engage in any other business that has nothing to do with or has a conflict of interest with the PF management business.The applicant institution or its major investors,de facto controller or senior executives may not have engaged in or b

280、e currently engaged in private lending,guarantee,factoring,pawn,financial leasing,online credit information intermediary,crowdfunding,OTC financing,private financing,small-amount wealth management,small-amount lending,P2P,P2B,real estate development,trading platforms and other businesses that confli

281、ct with or have nothing to do with the PF management.Shareholding structure The applicant institution shall have a concise and clear shareholding structure which may not have a special design to avoid regulatory requirements.The shareholder of an applicant institution is prohibited from holding shar

282、es on behalf of others.Internal control system The applicant institution shall make a written commitment that before completion the filing of the first fund product,it would neither change its legal representative,controlling shareholder or de facto controller or make any other changes involving cri

283、tical matters,nor arbitrarily replace its general manager,compliance/risk control officer or any other senior executives.Relevant requirements for affiliates,subsidiaries,and de facto controllers If the applicant institution shall have other PFMs in its subsidiaries,branches or affiliates,it shall s

284、ubmit its registration application after the commencement of actual business operation and completion of the filing of the first PF product by the other PFMs.If the same de facto controller already owns a PFM,the de facto controller and the majority shareholder(or executive partner)of the applicant

285、institution shall make a written commitment to continue to hold the equity and maintain actual control of the applicant institution for no less than 3 years after the applicant institution completes the registration;and the de facto controller shall undertake that if there is any violation of laws o

286、r regulations in the business operation of the new applicant institution,the de facto controller and the registered affiliated PFM under its control shall assume the corresponding joint and several liability for non-compliance and the self-disciplinary consequence.2.2.2 Basic ProcessIt is stipulated

287、 in Article 7 of the Interim Measures for the Supervision and Administration of Private Investment Funds that PFMs shall apply for registration with the AMAC in accordance with regulations,and submit the following information:1.Corporate registration information,and photocopies of the original and d

288、uplicate of business license;2.Articles of association,or partnership agreement;3.List of major shareholders or partners;4.Basic information of senior executives;and5.Other information required by the AMAC.The AMAC shall,within 20 working days after the PFM registration material are complete and in

289、place,consummate the registration formalities through an announcement of the list of the PFMs and their basic information on the website.The PFMs must conduct registration via the Asset Management Business Electronic Registration System()of the AMAC.02-Market Entry for Foreign-Invested Private Funds

290、 in China31x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20222.3 Filing of PF Products2.3.1 Filing RequirementsThe consummation of fund filing is an important prerequisite for smooth investment operations.The Instructions for the Filing of Private Investment Funds,Noti

291、ce on Matters Related to the ItemBrief SummaryType and name Type:Private securities investment funds,private securities FOFs,VC funds,VC-type FOFs,PE investment funds,private asset allocation funds.Name:The name of a partnership-type or company-type fund shall contain one or the combination of the w

292、ordings“fund”(“基金”),“investment”(“投资”),“asset management”(“资产管理”)and“capital management”(“资本管理”);and the name of a contract-type fund shall contain the wordings“private”(“私募”)and“fund”(“基金”).Duration A clear duration shall be covenanted for each private investment fund.The duration covenanted for a

293、PE investment fund,or a private asset allocation fund shall not be less than 5 years,of which the duration is the investment period+the exit period,excluding the extension period.Bank account Fundraising supervision account:It is a mandatory requirement that the fundraising institution or the respon

294、sible entity stipulated under the relevant contract shall open a special account for fundraising and settlement of funds.Custody account:Fund custody shall be required under certain circumstances,including:(1)contract-type private investment funds and private asset allocation funds;(2)private invest

295、ment funds indirectly invested in underlying assets through companies,partnerships or other SPVs;and(3)PE investment funds or private asset allocation funds filed with the AMAC conduct the subsequent fundraising.Look-through verification of QIs If a fundraising institution effects its investment in

296、a private investment fund in the form of partnership or any other non-corporate entity,it shall make a look-through verification whether each of the ultimate investors is a qualified investor(QI)and calculate the number of investors on a consolidated basis.If the same investor exists at different le

297、vels,all levels concerned must meet QI requirements.Scope of filing Private investment funds shall not be lending(deposit)activities.Fundraising and investing activities that do not conform to the nature of“funds”are not within the scope of the filing of private investment funds.15Rigid payment proh

298、ibited Neither PFM nor any of its de facto controller,shareholders,affiliates,and fundraising agencies may promise investors the minimum ROI or that any principal will not suffer any losses or limit the amount and proportion of any loss.Specific capital pool business prohibited PFMs shall manage the

299、 funds of each private investment fund separately,set up stand-alone accounts and carry out accounting independently,and may not conduct or participate in any form of“capital pool”business,and may not commit illegal operations such as short-term fundraising for long-term investment,mismatched repaym

300、ent term,separate pricing,rolling issuance,and commingled operation.Registration and Filing of Private Fund Managers,Key Points for the Filing of PE/VC Funds and other regulations released by the AMAC set out specific provisions regarding the registration of the PFMs,which are summarized as follows:

301、15 Please refer to the Instructions for the Filing of Private Investment Funds.Such scenarios include:(1)Disguisedly engaging in the credit(deposit)business of financial institutions,or directly investing in the credit assets of financial institutions;(2)Engaging in regular or operating private lend

302、ing activities,including but not limited to engagement in the aforesaid activities through entrusted loans,trust loans,etc.;(3)Engaging in lending(deposit)activities in disguise by setting up unconditional rigid repurchase arrangements,and the ROI of the fund is not linked to the operating performan

303、ce or income of the investment target;(4)Investing in assets,equities or the beneficiary(income)right in the businesses conflicting with private investment funds mentioned in the Questions and Answers regarding the Registration and Filing of Private Funds(VII),such as factoring assets,financial leas

304、ing assets,pawn assets,etc.;and(5)Engaging in the aforesaid activities indirectly or in disguise by investing in partnerships,companies,asset management products(including private equity investment funds,the same below),etc.02-Market Entry for Foreign-Invested Private Funds in China32 x|Foreign Priv

305、ate Equity Funds In China-Guide to Market Entry and Operations 2022Investment units prohibited No PFMs are allowed to set up investment units/sub-units within the private investment funds which different investors participate in and invest into different assets to evade filing obligations and treat

306、investors unfairly.Closed-end operation PE investment funds and private asset allocation funds shall operate in a closed-end manner and may not be open for subscription/purchase(subscribed contribution)and redemption(exit)after the filing is consummated,except for distribution of dividends during th

307、e period of closed-end operation of the funds,capital reduction upon exits from investment projects,involuntary redemption or replacement of defaulting investors and transfer of fund units.For the PE investment funds or private asset allocation funds for which filing has been approved,if certain con

308、ditions Please refer to the Instructions for the Filing of Private Investment Funds.Such conditions include:(1)The fund is organized as a company or a partnership;(2)The fund is under custody by a custodian legally established and qualified for the fund custody business;(3)The fund is within the inv

309、estment period agreed in the contract;(4)If the fund makes any portfolio investment,the amount of such investment into a single target does not exceed 50%of the capital contribution subscribed ultimately by the fund;(5)The investment resolution is agreed unanimously by all investors or adopted under

310、 the decision-making mechanism approved by all investors.16 are met,new investors can be added or the capital contributions subscribed by existing investors can be increased provided that the amount of the subscribed capital contributions increased may not exceed 3 times the amount of subscribed cap

311、ital contributions at the time of filing.PFM and management fee No more than one manager for a private investment fund is allowed.No general partners,special limited partners or investors who do not act as managers may,as covenanted in the fund contract or in disguised form,collect management fees.R

312、elated transactions If any private investment fund carries out any related transaction,the pre-transaction and in-transaction information disclosure arrangements,as well as special decision-making mechanism and recusal arrangement,shall be clearly covenanted in the fund contract therefor.16 Please r

313、efer to the Instructions for the Filing of Private Investment Funds.Such conditions include:(1)The fund is organized as a company or a partnership;(2)The fund is under custody by a custodian legally established and qualified for the fund custody business;(3)The fund is within the investment period a

314、greed in the contract;(4)If the fund makes any portfolio investment,the amount of such investment into a single target does not exceed 50%of the capital contribution subscribed ultimately by the fund;(5)The investment resolution is agreed unanimously by all investors or adopted under the decision-ma

315、king mechanism approved by all investors.02-Market Entry for Foreign-Invested Private Funds in China33x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 2022Figure 18.Registration/Filing process for PFMs and private fund productsReject record-filingSubmit product operation

316、informationDisclose product operation informationMaterial changes in productsReport on material matters regarding the productSuspend processingWaive registrationReject registrationLockup for6 monthsInput employee informationAnnual informationupdateAnnual auditedfinancial reportChanges in material ma

317、tters regarding the managerCancelaccountSource:AMAC2.3.2 Basic ProcessIt is stipulated in Article 8 of the Interim Measures for the Supervision and Administration of Private Investment Funds that after private fundraising is consummated,PFMs shall complete the formalities for filing of funds in acco

318、rdance with regulations of the AMAC,and submit the following information:1)The main investment direction,and type of fund indicated on the basis of the main investment direction;2)The fund contract,articles of association or partnership agreement,as well as fund prospectus if the fund prospectus is

319、provided to investors in the process of fundraising and industrial and commercial registration information and photocopies of the original and duplicate of business license if the private fund is established in the form of company,partnership or otherwise;3)The entrusted management agreement if entr

320、usted management is adopted,as well as the custody agreement if a custodian institution is entrusted to take custody of the funds properties;and4)Other information required by the AMAC.The AMAC shall,within 20 working days after PF filing material,consummate the formalities through an announcement o

321、f the list of the PFs and their basic information on its website.The PFMs must conduct the filing of funds via the Asset Management Business Electronic Registration System()of the AMAC.The registration/filing process for the PFMs and private fund products are shown as follows(see Figure 18):Framewor

322、k of Regulatory and Self-Regulation System for PE Investment FundsSupplement or correctSupplement or correctProduct record-filing reviewApprove record-filingManager registration reviewApprove registrationFill in the record-filing information of the productProduct liquidationCancel 02-Market Entry fo

323、r Foreign-Invested Private Funds in China34 x|Foreign Private Equity Funds In China-Guide to Market Entry and Operations 20222.4 Cross-border Investment Routes2.4.1 Foreign Investment Access2.4.1.1 Foreign Investment LawOn March 15,2019,Chinas Second Session of the 13th National Peoples Congress rev

324、iewed and adopted the Foreign Investment Law of the Peoples Republic of China(Foreign Investment Law)which came into force on January 1,2020.The Law of the Peoples Republic of China on Sino-Foreign Equity Joint Ventures,Law of the Peoples Republic of China on Sino-Foreign Contractual Joint Ventures,

325、and Law of the Peoples Republic of China on Wholly Foreign-Owned Enterprises,adopted in 1979,1988 and 1986 respectively and amended from time to time later,were repealed at the same time.The Foreign Investment Law institutionalized,via the highest legislature,results of Chinas reform and adjustment

326、of administration of foreign investments in recent years and reshaped the basic legal framework of administration of foreign investments.On December 26,2019,Chinas State Council promulgated Regulations for the Implementation of the Foreign Investment Law of the Peoples Republic of China(Regulations

327、for the Implementation of the Foreign Investment Law)which,as the administrative regulations is ancillary to the Foreign Investment Law,aims to clarify and refine applicable provisions,enhance operability,and secure effective implementation of the Foreign Investment Law.In addition,the MOFCOM,the SA

328、MR,the National Development and Reform Commission(NDRC),the Supreme Peoples Court and other administrative and judicial authorities at the national level also successively released and promulgated other ancillary rules and regulations,including the Measures for the Information Reporting of Foreign I

329、nvestment,Measures for the Security Review of Foreign Investment,to clarify and refine the application and interpretation of the Foreign Investment Law in practice.Procedures for Establishment and ChangeThe Foreign Investment Law established a reporting system under which foreign investors or foreig

330、n-invested enterprises must submit their investment information to the competent commerce authorities through the enterprise registration and credit information publicity systems.The principle is that the information is reported to the extent necessary and the investment information that can be obta

331、ined through sharing among authorities will not need to be reported again.Measures for the Information Reporting of Foreign Investment detailed the requirements provided in the Foreign Investment Law.The establishment or change of foreign-invested enterprises need not clear formalities for filing of

332、 establishment and change with the commerce authorities,and only need submit investment information in line with the foreign investment information reporting system.2.4.1.2 Foreign Investment Access System:Pre-entry National Treatment plus Negative ListIn accordance with the Foreign Investment Law a

333、nd Regulations for the Implementation of the Foreign Investment Law,China implements the pre-entry national treatment and negative list management system for foreign investments,and foreign investments in areas not mentioned in the negative list are administered under the principle of equal treatment to domestic investments and foreign investments.The negative list refers to special administrative