New measures to support foreign investment in Chinese science and technology enterprises

China’s new policy measures aim to attract foreign investment in the technology sector through relaxing regulations, promoting cooperation, and improving the investment environment.

On April 19, 2023, the Ministry of Commerce of China (MOFCOM), together with nine other departments, announced a series of new policy measures (hereinafter referred to as “New Measures”) aimed at promoting foreign investment in the technology sector. .

Among the new measures, China intends to facilitate the issuance of renminbi-denominated bonds by eligible foreign institutions and encourage domestic and foreign high-tech companies to raise funds through bond issuance.

Additionally, the government will streamline the process of foreign investment in Chinese high-tech companies through schemes such as Qualified Foreign Limited Liability Partners (QFLP); Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investor (RQFII)allowing foreign investors to invest in Chinese stocks and bonds.

This article provides an overview of the new measures and their broader significance in fostering international investment and promoting innovation-led growth, highlighting China’s efforts to instill confidence in foreign investors.

Overview of new measures: main goals

The new measures include a total of 16 items aimed at promoting foreign investment in China’s technology sector and improving the overall investment environment.

The new measures are divided into four main chapters, addressing key aspects such as:

• Facilitate access for foreign investors.
• Streamline foreign exchange management.
• Promote diversified funding channels.and
• Improving exit mechanisms to promote positive investment cycles.

Optimized service management

First, China aims to expedite the approval process for QFIIs and RQFIIs to ensure efficient access to the Chinese market. Additionally, the government is committed to simplifying procedures and making it easier for foreign institutions to manage their operational activities and finances.

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The new measures include improved foreign exchange controls for direct investment, which will ease the path for foreign institutions to engage in domestic equity investment. Furthermore, the new measures highlight the need to increase operational efficiency and reduce financial barriers to support investment in domestic technology companies through the QFLP scheme and the optimization of cross-border capital concentration. .

China also strives to ensure fairness and transparency in the establishment of venture capital funds by foreign institutions within its borders. The government aims to create a level playing field for domestic and foreign investors to have equal opportunities to participate in venture capital activities by implementing “customized self-discipline management practices”.

What this means is that while foreign institutions are encouraged to invest in and operate venture capital funds in China, they are also subject to certain rules and regulations that ensure integrity and compliance with the law. These regulations are tailored to the specific needs and circumstances of foreign investors and enable them to effectively navigate the investment environment.

Diversification of funding sources to promote scientific and technological innovation

According to the new measures, China will help eligible foreign institutions issue renminbi-denominated bonds with funds aimed at the technology sector. The move aims to provide more funding routes for overseas institutions and encourage investment in innovation in the Chinese market.

At the same time, China will support foreign institutions to invest in technology-oriented enterprises, enable corporate bond issuance, and actively expand the scale of corporate bond issuance. Additionally, the government will support cooperation between Chinese banks and overseas institutions.

Strengthen cooperation and promote efficient investment coordination

The new measures aim to strengthen cooperation between Chinese and foreign institutions by supporting the establishment of joint investment cooperation and communication platforms. This includes developing specialized mechanisms to facilitate financing for technology-oriented companies and projects.

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Platforms such as the National Industrial and Financial Cooperation Platform, Innovation and Entrepreneurship Competition, and Public Roadshow will be used to provide services for overseas institutions to research and evaluate early-stage technology companies.

Relevant departments, local governments, and industry associations will work together to create a demand list based on their respective roles and priorities in industrial development, enterprise development, and technology transfer. Emphasis will be placed on promoting cooperation between foreign institutions.

• advanced manufacturing
• high tech companies
• Technology Small and Medium Enterprises (SME)
• innovative small business
• New, highly specialized small and medium-sized enterprises

Furthermore, overseas institutions are required to strengthen collaboration with domestic related institutions and government-led funds. This cooperation is essential to foster innovation and foster economic growth.

The new measures will encourage the creation of specialized funds, called “mother funds” and “sub-funds”, focused on emerging sectors. These include:

• next generation information technology
• artificial intelligence
• quantum technology
• biotechnology
• New energy and future energy
• Industrial machinery
• Aviation and space equipment
• power equipment
• new material
• Core basic components
• instrumentation

Support will be provided to technology companies receiving foreign investment to strengthen collaboration with related countries in the industrial chain. This support aims to strengthen cooperation across the entire innovation process, from research and development to commercialization.

Meanwhile, overseas institutions investing in technological achievements will receive support in applying for technology transfer. This means that investments are encouraged to be used to facilitate the transfer of technology from research institutes and other entities to commercial applications in the market.

This measure aims to encourage foreign institutions not only to invest in technology-oriented enterprises, but also to actively participate and contribute to the development of emerging sectors. Through cooperation and technology transfer, the goal is to drive innovation in key sectors of the economy, strengthen competitiveness and foster sustainable growth.

Promoting personnel exchange

The new measures also aim to facilitate the entry of foreign agency personnel into China by addressing visa requirements. in particular:

• For short-term visa applications: The government will implement targeted services to streamline the process. This includes: ‘Green Channel’ where individuals can apply for visas without prior appointment and are exempt from fingerprintingmaking the process faster and more convenient.
• For long-term visa applications: Support will be provided to those who are engaged in the management of overseas institutions. This results in Individuals can obtain the necessary visas to stay and work in China for an extended period of timepromote continuity and stability of engagement with national organizations.

Promoting localization of operations

The new measures emphasize support for foreign institutions to promote investment in China through the establishment of offices, the formation of local teams, and overall strengthening of localization operations.

By setting up an office or team within China, foreign companies can gain deeper insight into the local market, culture, and regulatory landscape. This makes work easier and leads to increased effectiveness and efficiency. Ultimately, this initiative aims to more closely integrate foreign institutions into the Chinese market and promote mutual benefits for both foreign investors and the local economy.

Promoting a healthy investment cycle

A final important aspect of the new measures is to promote a healthy investment cycle in the science and technology sector.

Promoting access for overseas investors

China recognizes the importance of overseas listings for technology companies to efficiently access capital markets. By ensuring a smooth and stable route for overseas listing financing, the country aims to accelerate the process for eligible technology companies seeking to list overseas.

China aims to use the Hong Kong financial market as a gateway to facilitate the listing process of technology companies and enhance financing and growth opportunities.

Facilitating mergers and acquisitions

Capital markets play an important role in facilitating mergers and acquisitions (M&A) activity. The new measures will help listed companies leverage a variety of payment instruments, such as stocks and convertible bonds, to acquire technology-oriented companies.

This initiative is expected to not only streamline the M&A process, but also facilitate the integration of technological resources and capabilities, foster innovation, and strengthen market competitiveness.

Promoting share transfer trials for private equity funds

The Private Equity Fund Share Transfer Pilot Program aims to increase the liquidity and flexibility of private equity investments. China aims to create a more dynamic investment environment by encouraging foreign institutions to actively participate in investment transactions.

This initiative provides investors with greater opportunities for investment entry and exit, thereby fostering a more vibrant and efficient market for technology investments.

Rights protection and tax benefits

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According to the new measures, China will ensure the rights of overseas institutions by guaranteeing the freedom to remit their lawful profits in renminbi or domestically earned foreign currency.

Furthermore, we will optimize tax systems such as dividend withholding and settlement processing for listed companies. This initiative aims to make it easier for eligible foreign institutions to enjoy the tax benefits provided in the new regulations. By streamlining these tax procedures, the government not only encourages foreign investment but also promotes transparency and efficiency in tax-related processes.

conclusion

China’s new measures highlight a concerted effort to attract foreign investment in science and technology. These efforts address the urgent need for new capital injections, particularly in response to foreign investment restrictions imposed by the United States.

By relaxing foreign exchange regulations, promoting renminbi bond issuance for high-tech investments, and promoting partnerships with government-backed VC funds, China aims to create a favorable environment for foreign investors.

However, it remains unclear whether these measures will have the effect of reversing the decline in sentiment toward Chinese high-tech investment. These signal China’s openness to business and serve as a response to U.S. investment restrictions, but their impact may be limited as geopolitical dynamics evolve and investor sentiment shifts. .

Ultimately, China’s efforts to strengthen its science and technology sector through foreign investment reflect strategic imperatives in an era characterized by rapid technological progress and geopolitical competition.