Recently, the Ministry of Commerce and other ten departments jointly issued the "Several Policies and Measures on Further Supporting Overseas Institutions to Invest in Domestic Science and Technology Enterprises" (hereinafter referred to as the "Measures"). The Measures focus on the business characteristics of foreign institutional investors (hereinafter referred to as "overseas institutions") and the development needs of domestic science and technology enterprises, and put forward 16 specific measures in four aspects: optimizing management services, increasing financing support, strengthening exchanges and cooperation, and improving the exit mechanism, requiring relevant departments in various regions to strengthen cooperation, integrate resources, optimize services, and jointly do a good job in the work of foreign institutions investing in domestic science and technology enterprises, promote the formation of a comprehensive science and technology financial service system, and better play the role of finance in supporting scientific and technological innovation.
"Some overseas institutions have reported that they hope to have more stable expectations, more investment channels, smoother exit channels, and more convenient tax incentives when conducting business in China. The person in charge of the Finance Department of the Ministry of Commerce said that the "Several Measures" actively respond to market demand, not only involving the business links of "fundraising, investment, management and withdrawal" of overseas institutions, but also government management services such as supporting supply and demand docking, smooth investment exit, and facilitating preferential treatment.
Efficiently approve QFII and RQFII qualification applications
In order to further optimize management services, the Measures further improve and clarify the relevant policy arrangements in three aspects: facilitating application access, optimizing foreign exchange management, and implementing differentiated supervision. In particular, in terms of application for access, the Measures specify that applications for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) will be efficiently approved in accordance with the law, so as to better meet the willingness of foreign institutions to enter the domestic market.
In terms of foreign exchange management, the above-mentioned person in charge said that in the implementation of the facilitation of foreign institutions to invest in China's bond market, On the basis of measures such as expanding capital account facilitation policies, we will continue to improve foreign exchange management under direct investment, facilitate overseas institutions to better carry out domestic equity investment, support overseas institutions to invest in domestic technology-based enterprises through qualified foreign limited partners (QFLP), and support technology-based enterprises to make full use of cross-border capital centralized operation and management policies such as the integrated capital pool of domestic and foreign currencies, so as to improve the efficiency of capital operation and reduce financial costs.
In addition, in terms of business supervision, the Measures specify that venture capital funds established by foreign institutions in China shall be treated the same as domestic venture capital funds, and the relevant policies set forth in the Regulations on the Supervision and Administration of Private Funds shall be applied on an equal footing. Industry experts believe that applying the same regulatory policies as domestic institutions without discrimination will greatly facilitate overseas institutions operating in China, and will help provide more convenient conditions for foreign institutions to carry out investment and business activities in China.
Standardize and explore the business model of "loan + external direct investment".
In order to support overseas institutions and their invested technology-based enterprises to broaden financing channels, the "Several Measures" start from supporting bond issuance, broadening financing channels, and optimizing financing structures, so as to enrich the sources of funds for science and technology innovation.
"For foreign institutions, the issuance of bonds, especially RMB bonds, in China can help them replenish their sources of funds and reduce exchange costs. The person in charge said that the relevant departments will continue to promote the high-level two-way opening of the bond market in a steady and orderly manner, support qualified foreign institutions to issue RMB bonds in China, and invest in the field of science and technology.
According to the data, in 2023, foreign institutions will issue a total of 154.5 billion yuan of panda bonds in the mainland, a year-on-year increase of 82%. In order to further facilitate the financing of overseas institutions in the domestic bond market, the above-mentioned responsible person said that the relevant departments should implement the Notice of the People's Bank of China and the State Administration of Foreign Exchange on Matters Related to the Management of Funds for Domestic Bond Issuance by Overseas Institutions, unify the management rules for the registration, account opening, exchange and use of funds, statistical monitoring and other management rules for panda bond funds in the interbank and exchange markets, and improve the management requirements for the funds of RMB bonds issued by overseas institutions in China.
It is worth noting that for technology-based enterprises, the issuance of bonds, especially credit bonds, can effectively alleviate the financing difficulties caused by insufficient collateral. The above-mentioned person in charge said that the China Securities Regulatory Commission will continue to promote the high-quality development of scientific and technological innovation corporate bonds, help reduce the financing cost of scientific and technological enterprises, continue to guide the Shanghai and Shenzhen Stock Exchange to issue scientific and technological innovation corporate bonds, focusing on supporting the development of scientific and technological innovation in high-tech industries, strategic emerging industry segments and leading industrial transformation and upgrading, as of the end of February 2024, the exchange market issued a total of 632 scientific and technological innovation corporate bonds, with a scale of 591.7 billion yuan.
The Financial Times reporter learned that in order to further optimize the financing structure of science and technology enterprises, relevant departments will also promote cross-border financing facilitation pilots across the country, include start-up science and technology enterprises in the scope of the pilot, standardize and explore business models such as "loan + external direct investment", and enrich science and technology financial products and services. Ye Yindan, a researcher at the Bank of China Research Institute, told reporters that the "loan + external direct investment" business model can effectively diversify risks, and by providing loans and direct investment at the same time, banks can reduce the risks brought by a single financing method while supporting the development of enterprises. As a result, this model increases the bank's risk tolerance. Through cooperation with venture capital institutions, commercial banks can improve their risk tolerance for financing small and medium-sized technology enterprises and increase their lending to such enterprises.
Improve the exit mechanism
The reporter noted that the "Several Measures" focused on improving the exit mechanism, and 5 of the 16 measures involved this aspect. "Whether the investment exit can be achieved smoothly and efficiently is a common concern of overseas institutions in the preliminary investigation, and it is also the key content of the "Several Measures". The person in charge said that the China Securities Regulatory Commission and other departments have launched a series of supporting measures around exit channels such as overseas listing, mergers and acquisitions, and share transfers.
In terms of supporting overseas listings, the Measures propose to continue to improve the quality and efficiency of overseas listing filing management, accelerate the progress of filing, and continue to smooth the channels for overseas listing of technology-based enterprises. At the same time, we will continue to promote the deepening of practical cooperation between the capital markets of the Mainland and Hong Kong, and strengthen Hong Kong's role as an international financing platform for technology-based enterprises. According to the data, from March 31, 2023, when the Trial Measures for the Administration of Overseas Issuance of Securities and Listing by Domestic Enterprises came into effect, to the end of March 2024, the filing of overseas initial public offerings and listings of 122 enterprises has been completed, of which 71 companies plan to list in Hong Kong.
In terms of encouraging mergers and acquisitions, the above-mentioned person in charge said that the next step will continue to promote the market-oriented reform of mergers and acquisitions, give full play to the function of the main channel for mergers and acquisitions in the capital market, and provide smooth exit channels for foreign institutions to invest in domestic science and technology enterprises. The Ministry of Commerce is taking the lead in revising the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies to further relax the restrictions on strategic investment by foreign investors in listed companies.
In recent years, the mainland has successively carried out pilot private equity share transfer pilots in regional equity markets such as Beijing, Shanghai, Guangdong, Zhejiang, Ningbo, Jiangsu, and Anhui, and introduced some supportive policies and measures to promote the construction of market ecology and build a blockchain-based trading system. Up to now, 7 provinces and cities have achieved 23.172 billion yuan of private equity share transfer and 31.607 billion yuan of private equity share pledge financing.
Talking about the next step in promoting the pilot project of private equity fund share transfer, the above-mentioned person in charge said that he will continue to optimize the private equity share transfer process and pricing mechanism, promote the coordinated development of private equity funds and regional equity markets, broaden the exit channels of private equity funds, and form a virtuous circle of "investment-exit-reinvestment".
According to the tax treaties signed between the mainland and relevant countries, qualified foreign institutions investing in listed companies in the mainland can enjoy preferential income tax. At present, when an overseas institution participates in the dividend payment of the listed company in which it invests, it is required to submit the "Information Report Form on the Benefits of Non-resident Taxpayers Enjoying the Benefits of the Agreement" before they can enjoy the preferential treatment under the agreement, otherwise the listed company will withhold and pay on behalf of the listed company, and then apply for supplementary preferential treatment and tax refund afterwards.
"Recently, some overseas institutions have reported that when the number of investment in listed companies is large, the operating cost of enjoying the relevant preferential treatment is high, and the overall convenience is not enough. The above-mentioned person in charge said that in response to the needs of overseas institutions, the State Administration of Taxation, the China Securities Regulatory Commission, and the Ministry of Commerce conducted in-depth research and actively studied to further optimize the dividend withholding tax and settlement procedures of listed companies. By smoothing the information exchange between government departments, clearing institutions and listed companies, listed companies can directly withhold declarations and pay dividends to relevant overseas institutions in accordance with the preferential provisions, without the need to withhold and pay tax before the overseas institutions apply for tax refunds, and overseas institutions do not need to submit relevant information reports to each listed company each time.
Source: Financial Times client
Reporter: Ma Ling
Editor: Liu Nengjing
Email: [email protected]
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