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