The Ministry of Commerce will revise and issue the "Administrative Measures for Strategic Investments by Foreign Investors in Listed Companies" to guide more high-quality foreign capital to enter the Chinese capital market for long-term investment. Zhu Bing, Director of the Foreign Investment Management Department of the Ministry of Commerce, revealed the above information at a recent press conference on the theme of "Promoting High-quality Development" held by the State Council Information Office.

In order to actively and steadily open up the capital market and orderly guide foreign investors to make strategic investments in A-share listed companies, the Ministry of Commerce, together with relevant departments, jointly issued the "Administrative Measures for Strategic Investments by Foreign Investors in Listed Companies" in December 2005. In 2015, the "Decision of the Ministry of Commerce on Amending Some Regulations and Regulatory Documents" adopted by the Ministry of Commerce deleted and revised some contents of the "Measures"; in 2020, the Ministry of Commerce publicly solicited opinions on the "Administrative Measures for Strategic Investments by Foreign Investors in Listed Companies (Draft for Public Comments on the Revised Draft)", and pointed out in the explanation that the current "Measures" mainly have problems such as high investment thresholds, fewer investment methods, and the management system is not connected with the current reform. In order to solve these problems and encourage foreign investment in mergers and acquisitions, the Ministry of Commerce has been actively promoting the revision and improvement of the "Measures".

Further relaxing market access is the key task to increase efforts to attract foreign investment in the future. In recent years, the Chinese government has been encouraging and relaxing restrictions on foreign investment in the capital market, including significantly increasing the total quota of QFII, canceling the requirement that the stock allocation in QFII asset allocation should not be less than 50%, and canceling the 20% limit on the remittance of QFII funds.

"From the 2020 draft revision of the Measures for the Administration of Strategic Investments by Foreign Investors in Listed Companies, we can see that the relevant departments have considered further relaxing the lock-up period and shareholding ratio for foreign investment in A-share listed companies." Zhang Yiqiang, EY North China Listing Services Managing Partner, said in an interview with reporters that, for example, previous laws and regulations prohibited foreign natural persons from making strategic investments and required foreign investors to hold at least 10% of their shares. The draft for comments includes foreign natural persons in the category of foreign investors, and the proportion of shares acquired by foreign investors must not be less than 5% of the issued shares of the listed company, lowering the shareholding ratio requirement. For another example, previous laws and regulations set a 36-month shareholding lock-up period, while the draft for comments adjusted the lock-up period to 12 months.

Looking at the global capital market, the A-share capital market with strict supervision and standardized operation of listed companies is quite attractive to global capital market investors. Zhang Yiqiang told reporters that the revision and release of the "Administrative Measures for Strategic Investments by Foreign Investors in Listed Companies" not only sends a strong signal that the Chinese government is determined to continue to open up at a high level and support foreign investors to invest in the mainland capital market, but also provides foreign investors with clearer policies and related guarantees for investing in A-share listed companies, which will attract more foreign investors to pay attention to and enter the mainland capital market.

"From the content of the draft for comments, the new measures allow foreign investors to use equity in overseas non-listed companies as payment consideration. With the current trend of Chinese companies going global and A-share listed companies being more active in overseas mergers and acquisitions, this also provides A-share listed companies with more choices in the form of overseas mergers and acquisitions." In Zhang Yiqiang's view, the "Measures" will also help Chinese listed companies to "go global" better. Listed companies can not only have a more diversified equity structure and a richer international perspective, but also better realize business globalization and enhance the ability of listed companies to operate globally.

Under the background of the tightening of the A-share IPO market, more and more Chinese companies are considering overseas listings, which will also better support Chinese companies' "going out" through the establishment of international capital platforms. Zhang Yiqiang frankly said that due to the combined influence of multiple factors, Chinese companies are currently facing certain difficulties and challenges in overseas listings. From a macro perspective, companies need to better summarize their global competitiveness and reach global investors. In the past, companies may consider the A-share market as the main target capital market from the perspective of valuation and liquidity. Investors in the market are more familiar with the companies to be listed, and the companies to be listed only win the favor of investors through horizontal comparisons in the domestic capital market. Now that they have turned to overseas listings, the investor structure is more globalized and diversified, and the companies to be listed need to benchmark globally to highlight the global competitiveness of the companies in the market segments. This not only requires a broader vision, but also requires companies to effectively reach the target investor group and have a better understanding and demonstration of their core competitiveness in global development. Therefore, it is an important challenge for companies to have a global vision, identify target investors, and tell a good Chinese story.

From a micro perspective, companies need to better understand the listing rules of the international capital market and ensure continuous compliance. This is also an important and necessary course for companies that switch from domestic listings to overseas listings. The recognition of Chinese listed companies by international investors will depend on their rapid understanding and strict compliance with international rules, which is also something that companies currently planning to go public urgently need to learn.

In this regard, Zhang Yiqiang suggested that, on the one hand, companies need to find professional institutions with good reputations and rich experience in overseas listings, communicate and sort out as early as possible before applying for listing, and clarify the rectification roadmap for overseas listings. On the other hand, the management should pay full attention and invest sufficient resources to cope with the difficulties and challenges in the process of overseas listings by combining internal and external efforts.