China's Foreign Venture Capital Law: How Far From Customary International Fund Practice?

The Chinese government has for a number of years recognized the desirability of attracting foreign investment into start-up private businesses in China that are long on ideas but short of capital. So far, however, the web of regulations surrounding foreign equity investment in China has not facilitated offshore venture capital investment in China, and Chinese venture capital-type investments have had to rely heavily on personal connections, informal assurances and legally questionable investment structures. New rules governing foreign venture capital investments may change the situation.

The recent release of the Ministry of Foreign Trade and Economic Cooperation, Ministry of Science and Technology and State Administration for Industry and Commerce, Establishment of Foreign-funded Venture Investment Enterprises Tentative Provisions (关于设立外商投资创业投资企业的暂行规定) (the Tentative Provisions) offers new opportunities for foreign investors. The new rules are intended to permit the organization inside China of foreign-funded, or largely foreign-funded, entities that will operate as venture capital investors, making possible venture capital investments in China's high and new technology enterprises which will have the protection of existing laws that legitimize and protect foreign investments in China.

Introduction