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The State Council has published new foreign investment guidelines that will widen market access for investors, boost China's global competitiveness and promote investment in high-technology and environmentally sound projects. The move could be seen as a response to complaints that the government was reversing its foreign investment policies in the wake of high-profile matters involving Google and Rio Tinto.

A trial plan for foreign participation in renminbi equity investment funds, to be implemented in the Pudong New Area, could open a gateway for the conversion of foreign exchange into renminbi, which has been a major factor hindering foreign general partners and limited partners from becoming involved in the renminbi private equity fund industry.

Various restrictions - including China's foreign exchange controls - have long prevented a limited partnership from receiving substantial funding from foreign investors, even indirectly. New measures allow a foreign investor to act as a general partner or limited partner of a limited partnership, but this is not the breakthrough for private equity and venture capital firms that it might appear.

New pilot measures provide guidance on the registration and incorporation of equity investment management companies in Pudong New Area to be established by foreign equity investment capital, including private equity investment and venture capital. However, would-be foreign investors should tread warily until the authorities provide detailed implementation rules.

China's law on state-owned assets improves their supervision by refining the rules for state-owned enterprise reforms, related-party transactions, appraisal and transfer of state-owned assets. Among other things, it also clarifies the authorities' responsibilities and limits state interference. These changes may increase the attractiveness of state-owned enterprises as acquisition targets for foreign investors.

China's laws and practices can seriously restrict foreign investors' ability to protect their rights and interests in a Chinese company that they control. The courts and government authorities tend to be flexible when a company presents a case where wrongdoing is clear on the facts. However, in order to obtain an optimal settlement in a complex private equity dispute, foreign investors must plan ahead.

The new Measures on Administration of Outbound Investment delegate the authority to verify Chinese outbound investment projects within certain thresholds to provincial verification authorities; they also simplify the verification application process and review standards. The changes are expected to facilitate outbound investment by state-owned and private companies.

The Ministry of Commerce has issued a circular which delegates part of its approval authority over foreign-invested projects to its provincial counterparts. The change applies to acquisitions by foreign investors of the assets of - or an equity interest in - existing Chinese enterprises, facilitating many foreign acquisitions by bringing them under the authority of the provincial approval entities.

The Ministry of Commerce has issued a circular in which it delegates its “powers of reviewing and verifying the recording of foreign investment project proposals in the real estate sector” to provincial approval authorities. Does the ministry want to grant such authorities greater leeway in approving foreign investment projects in the real estate sector? The answer appears to be yes.

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