MOFTEC's Swansong: Easing Restrictions on PRC Holding Companies

There is another less apparent benefit. Previously, investments by a holding company would only be treated as akin to foreign investment (i.e., as counting toward the 25% investment threshold under which a manufacturing FIE would receive tax holidays) if such investment were made in foreign exchange. Now it seems that any investment by a holding company, irrespective of whether it is in RMB or foreign exchange, will count as foreign investment. At the same time, investments in RMB could conceivably be subject to verification by the State Administration of Foreign Exchange (SAFE), in much the same way as reinvestments of RMB profits.

Investing in Joint Stock Companies

The Amendments confirm enactments promulgated elsewhere in the past two years that a holding company may be a promoter of a joint stock company, or hold unlisted shares in both foreign-invested and domestic joint stock companies. They still cannot hold listed shares or list the shares that they hold. But, as is the case with foreign direct investors (as a result of recent reforms), the way now seems clear for holding companies to hold unlisted legal person shares in listed companies.

Higher Borrowing Threshold

In general, where the registered capital of a holding company is not less than US$30 million, the amount of loans (meaning, in practice, mid- to long-term foreign debt) to be taken out by the holding company may not exceed four times the amount of its paid-up registered capital. Under the Amendments, a holding company may take out up to six times the amount of its paid-up registered capital in loans if the registered capital of a holding company is not less than US$100 million. MOFTEC approval will be needed if the holding company intends to exceed the above debt-equity ratio due to business requirements.

This was the only benefit for "large" holding companies that remained from a raft of enticements promised by the Discussion Draft