Zhuhai City, Tentative Measures for the Administration of the Pilot Foreign-invested Equity Investment Enterprise Project

For the purposes of these Measures, the term “foreign-invested equity investment enterprise” (an Equity Enterprise) means an enterprise recognized by the Steering Committee in which a foreign enterprise or individual lawfully participates in the investment therein and the establishment thereof in Zhuhai, and that raises funds from domestic and foreign investors in a non-public manner to invest in the equity of non-publicly traded enterprises.

For the purposes of these Measures, the term “pilot enterprise” means a Management Enterprise or Equity Enterprise as specified in the first and second paragraphs of this Article. A pilot enterprise may be organized in forms such as a company or partnership. A pilot enterprise shall be a private investment firm and must carry out private fund manager registration and private fund record filing procedures with the Asset Management Association of China (AMAC) in accordance with relevant provisions such as the Tentative Measures for the Regulation of Private Investment Funds and the Measures for the Registration of Private Investment Fund Managers and Record Filing of the Funds (Trial Implementation).

Article 3:     Zhuhai City shall establish a Steering Committee with the senior official in charge of finance in Zhuhai serving as committee chairman, with the member entities consisting of entities such as the City Bureau of Financial Work, the Zhuhai City Central Sub-branch of the People's Bank of China, the Zhuhai City Central Sub-administration of the State Administration of Foreign Exchange, the Hengqin New Area Management Committee, the City Bureau of Commerce and the City Administration for Industry and Commerce. The Steering Committee shall promote the pilot Equity Enterprise work in Zhuhai City in accordance with relevant state provisions and coordinate the resolution of relevant issues encountered in the course of the pilot project.

The Steering Committee shall have a general office that shall be housed in the City Bureau of Financial Work and be specifically responsible for the following pilot tasks:

(1)     accepting applications from pilot enterprises and arranging for the review thereof;

(2)     overseeing pilot enterprises and custodians;

(3)     arranging for the formulation and implementation of supporting policies relating              to pilot enterprises; and

(4)     other routine matters of the Steering Committee.

Each member entity of the Steering Committee shall lawfully carry out oversight of pilot enterprises within their respective purviews. The Zhuhai City Central Sub-branch of the People's Bank of China and the Zhuhai City Central Sub-administration of the State Administration of Foreign Exchange shall be responsible for cross-border renminbi and foreign exchange control matters relating to these Measures; the commerce department shall be responsible for the foreign-invested enterprise record filing work for pilot enterprises; and the administration for industry and commerce shall be responsible for the registration of pilot enterprises.

Article 4:     Domestically-invested private equity and venture capital fund management companies that satisfy the provisions of Part Two hereof may participate in pilot project work, promoting the establishment of Equity Enterprises or managing the same upon commission.

Part Two: Pilot Conditions

Article 5:     An Equity Enterprise applying for the pilot project and the enterprise managing the same must both be registered in Zhuhai.

Article 6:     The registered capital of (or subscribed-for capital contribution to) a Management Enterprise may not be less than a foreign currency equivalent of US$2 million, and capital contributions may only be made in cash. At least 20% of the registered capital (or subscribed-for capital contributions) shall be paid in within three months from the date of issuance of the business license, and the remainder shall be paid in within two years from the date of establishment of the enterprise.

The subscribed-for capital contributions to an Equity Enterprise shall satisfy the following conditions:

(1)     the subscribed-for capital contributions to an equity investment enterprise the investment in and establishment of which an enterprise or individual from Hong Kong or Macao is involved shall not be less than a foreign currency equivalent of US$6 million, and the subscribed-for capital contributions to an equity investment enterprise the investment in and establishment of which another foreign enterprise or individual is involved shall not be less than a foreign currency equivalent of US$15 million; and

(2)     the capital contributions may only be made in cash, and the source of such funds shall be lawful. Shareholders of, or partners in, an Equity Enterprise shall make their capital contributions with their own funds.

Article 7:     A Management Enterprise may be promoted for establishment either as a wholly foreign-owned enterprise or Sino-foreign equity joint venture, and its shareholders or partners shall satisfy the following conditions:

A foreign shareholder or partner shall satisfy one of the following conditions:

(1)     during the fiscal year preceding the application, having own assets (net assets) amounting to not less than the foreign currency equivalent of US$6 million or assets under its management of not less than the foreign currency equivalent of US$12 million, in the case of a Hong Kong or Macao investor; or having own assets (net assets) amounting to not less than the foreign currency equivalent of US$100 million or assets under its management of not less than the foreign currency equivalent of US$200 million, in the case of another foreign investor; with a view to promoting the appropriately diversified development of the Macao economy, the requirements in respect of Macao enterprises and individuals may be suitably relaxed, with the Steering Committee conducting reviews on a case by case basis in light of the actual circumstances; or

(2)     having an asset management license issued by a foreign financial regulator.

A domestic shareholder or partner shall satisfy one of the following conditions:

(1)     being a licensed financial institution approved by a state financial regulator, such as a commercial bank, securities company, insurance company, trust company, lease financing company or publicly-offered fund management company, or a first tier subsidiary in which such an institution holds at least 50% of the shares; or

(2)     being an enterprise registered in Zhuhai that satisfies one of the following conditions: during the fiscal year preceding the application, having own assets (net assets) of not less than Rmb300 million or assets under its management of not less than Rmb500 million; or, during the previous three years, having aggregate net profits totaling not less than Rmb60 million and having paid aggregate taxes totaling not less than Rmb18 million; or being an enterprise listed on a main board in China or abroad or the controlling shareholder thereof.

Article 8:     A Management Enterprise shall have two senior officers that satisfy all of the following conditions:

(1)     having at least five years of experience in equity investment or equity investment management business;

(2)     having at least two years of experience in a senior management position;

(3)     having experience engaging in equity investment in China or experience in a financial institution in China; and

(4)     not having a record of violations of laws or regulations in the most recent five years, not being involved in an economic dispute litigation case that is still pending and having a good personal integrity record.

For the purposes of these Measures, the term “senior officer” means a director, supervisor, general manager, deputy general manager, financial controller, board secretary or other person specified in the articles of association of an enterprise organized as a company, or the general partner or other person specified in the partnership agreement of an enterprise organized as a partnership. If the general partner of an enterprise organized as a partnership is an organization with legal personality, the senior officers of such organization shall also be deemed senior officers.

Article 9:     If the domestic and foreign investors in an Equity Enterprise serve as limited partners, they shall satisfy the requirements for qualified investors specified in provisions such as the People's Bank of China, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and State Administration of Foreign Exchange, Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Yin Fa [2018] No.106) and the Tentative Measures for the Regulation of Private Investment Funds (Order of the CSRC No. [105]).

Article 10:     A domestically-invested private equity or venture capital fund management company that promotes the establishment of an Equity Enterprise or manages the same upon commission shall additionally satisfy the following conditions:

(1)     the management firm or its controlling shareholder being lawfully incorporated in China and having been registered with AMAC for at least six months;

(2)     the management firm or its controlling shareholder having own assets (net assets) of not less than Rmb300 million or assets under its management of not less than Rmb500 million during the previous complete fiscal year;

(3)     operating compliantly, having a sound governance structure and internal control systems, not having been assessed penalties by a judicial authority or relevant regulator during the most recent three years, not being on the list of delinquent enterprises that have committed serious violations of the law in the state publication system for enterprise integrity information and not being on AMAC's list of institutions no longer in contact (irregular); and

(4)     the management company's place of registration being Zhuhai.

Article 11:     A Management Enterprise or a domestically-invested private equity or venture capital fund management company that satisfies Article 10 hereof shall serve as the general partner of an equity investment enterprise promoted for establishment by it.

Part Three: Operation of the Pilot Project

Article 12:     A pilot enterprise must include the words “equity investment management” or “equity investment” in its name. A foreign-invested enterprise that has not undergone recognition for the pilot project may not include the words “equity investment management” or “equity investment” in its name.

Article 13:     A Management Enterprise may engage in the following business:

(1)     promoting the establishment of equity investment enterprises;

(2)     managing the investment business of an equity investment enterprise upon commission and providing related services;

(3)     equity investment consulting; and

(4)     other related business permitted by the approval or registration authority.

A Management Enterprise may not directly invest in projects.

Article 14:     An Equity Enterprise may engage in the following business:

(1)     to the extent permitted by the state, lawfully carrying out equity investment in China with its own funds, with the specific methods of investment including establishment of new enterprises, investing in existing enterprises, acquiring equity transferred by investors of existing enterprises and other methods as permitted by state laws and regulations (investments specified by the state to be included in the scope of the special administrative measures for access shall be subject to examination and approval);

(2)     providing management consulting to investee enterprises; and

(3)     other related business permitted by the approval or registration authority.

Article 15:     An Equity Enterprise shall make its investments in real industry and infrastructure projects that are conducive to the development of the Guangdong-Hong Kong-Macao Greater Bay Area, or taking the Foreign Investment Industrial Guidance Catalogue as the guide by directly investing in industry. Investment using the fund of fund (FOF) model is prohibited, with the exception of investment in industry by strategic cooperating Equity Enterprises at city level and above or by funds that invest in dedicated projects. Where the general partner of an Equity Enterprise and the de facto controller of a limited partner are the same person, such de facto controller's capital contribution may not exceed 50%. Management Enterprises and Equity Enterprises may not engage in matters prohibited by laws or regulations.

Article 16:     Foreign investors may make their capital contributions using a freely convertible currency, offshore renminbi, renminbi profits derived in China or lawful renminbi returns derived from activities such as conversion of profits into shares and liquidation. Chinese investors must make their capital contributions in renminbi.

When an Equity Enterprise engages in domestic equity investment business, it shall strictly comply with relevant provisions on foreign exchange control and administration of cross-border renminbi transactions.

Article 17:     A Management Enterprise shall engage a commercial banking institution to serve as its primary fund custodian, and an Equity Enterprise or a domestic renminbi fund managed by a Management Enterprise shall engage a commercial banking institution as its project fund custodian. A custodian shall be a commercial bank at branch level or above that is approved by the state financial regulator and that has fund custody capabilities and qualifications.

Article 18:     A primary fund custodian or project fund custodian shall perform its custodial duties, examine the genuineness and compliance of the use of funds in custodial accounts, monitor the lawful and compliant use of funds in custodial accounts by pilot enterprises within their scopes of business, conduct relevant anti-fraud and anti-money laundering checks at the time of liquidation of a project, and procure the payment of relevant taxes and levies by enterprises. A primary fund custodian shall conduct monitoring checks of the income or profit from all projects managed by a Management Enterprise, and a project fund custodian shall conduct monitoring checks of specific projects.

Part Four: Application for the Pilot Project

Article 19:     Where the establishment of a pilot enterprise is applied for, a pilot project application shall be submitted to the general office of the Steering Committee (City Bureau of Financial Work). The City Bureau of Financial Work shall regularly arrange for the member entities of the Steering Committee to conduct reviews together and submit the same to the Steering Committee for examination and approval.

A pilot enterprise that has been found to satisfy the conditions shall, after the issuance of a recognition notice by the City Bureau of Financial Work, proceed to the administration for industry and commerce to carry out registration procedures. A pilot enterprise organized in the form of a company shall additionally carry out record filing procedures in accordance with relevant provisions of the commerce department.

Article 20:     When applying for the establishment of a pilot enterprise, the following materials shall be submitted:

(1)     a written application for the establishment of a Management Enterprise or Equity Enterprise;

(2)     a feasibility study;

(3)     the articles of association or cooperation agreement of the Management Enterprise (an Equity Enterprise is required to submit its articles of association or partnership agreement);

(4)     a list, the résumés, photocopies of the ID documents and supporting documentation evidencing engagement in fund business (if any) of the candidates for legal representative and board members (an Equity Enterprise is required to submit a list of the candidate partners);

(5)     the proof of registration or proof of identity of the foreign investor notarized by a notary office in the home country and certified by the Chinese embassy (consulate) in that country; an investor from Hong Kong or Macao shall provide in accordance with the law its proof of registration or his/her proof of identity notarized by a local notary office and its/his/her proof of creditworthiness (a foreign partner of an Equity Enterprise shall additionally provide proof of its/his/her domicile. The proof of foreign domicile of a foreign (regional) partner shall, after notarization by the competent authority of its/his/her home country, be sent to the Chinese embassy (consulate) in that country (region) for certification; the notary document from the local notary office shall be provided for the proof of foreign domicile of a Hong Kong or Macao partner. If a foreign partner has a domicile in China, it/he/she may provide proof of such domicile in China, without notarization or certification, and shall not be required to provide proof of foreign domicile);

(6)     details of the holding of a financial business license (if any) from the foreign financial regulator;

(7)     documentation evidencing own assets or assets under its management (provision of financial reports audited by an accounting firm or valid proof issued by another third-party firm);

(8)     an individual investor shall provide proof of his/her personal assets and income;

(9)     photocopies of the relevant documents of preliminary approval of the enterprise name or of submission of the name issued by the administration for industry and commerce;

(10)     relevant information on the custodian and relevant documents signed with the custodian;

(11)     a letter of undertaking to the effect that all of the foregoing materials are true issued by the applicant; and

(12)     other materials as required by the Steering Committee.

Part Five: Oversight

Article 21:     A Management Enterprise shall complete registration with AMAC and establish its first Equity Enterprise or domestic private equity or venture capital fund within 12 months of securing its recognition notice. All of the Equity Enterprises or domestic private equity or venture capital funds established by it shall complete record filing procedures with AMAC within six months. If the registration of a private fund manager or record filing of a private fund is not carried out in a timely manner, the Steering Committee shall cancel its pilot qualifications, announce the same and order it to carry out deregistration procedures within 90 days.

Article 22:     Third-party capital verification firms shall cooperate with the general office of the Steering Committee in establishing a review mechanism based on the principle of “thorough penetration” to review pilot enterprises an investor in which is an organization without legal personality, such as a pooled fund trust or partnership, in order to ensure that the natural persons and organizations with legal personality are qualified investors.

Article 23:     In the event of a change in any of the particulars of a pilot enterprise set forth below, such enterprise shall carry out with the general office of the Steering Committee the procedures for examination and approval of the change and submit the following materials:

(1)     a change application report;

(2)     the resolution on the change adopted by the shareholders, board of directors or partners' meeting;

(3)     the amended articles of association or partnership agreement of the enterprise;

(4)     where the name of the enterprise is changed, the relevant documents of preliminary approval of the enterprise name or of submission of the name shall additionally be provided;

(5)     where the legal representative, executive partner or a senior officer is replaced, the résumé and a photocopy of the ID document of his/her proposed replacement shall additionally be provided;

(6)     where a shareholder or partner is changed, the materials specified in Items (5), (6), (7) and (8) of Article 20 hereof shall additionally be provided;

(7)     where the registered address is changed, proof of the registered address shall be provided; and

(8)     other materials as required by the Steering Committee.

Where a pilot enterprise carries out the procedures for examination and approval of a change as specified in the preceding paragraph, the City Bureau of Financial Work shall carry out a preliminary review, render its decision after seeking comments from the member entities of the Steering Committee and issue a recognition notice.

Article 24:     A pilot enterprise shall, on a semiannual basis, report to the City Bureau of Financial Work the following material matters occurring in the course of its investment operations during the half year:

(1)     details on the operation of its investment projects;

(2)     revision of material legal documents such as its articles of association or partnership agreement; and

(3)     other matters as required by the City Bureau of Financial Work.

Article 25:     The duties that the custodian of a pilot enterprise is required to perform shall include but not be limited to:

(1)     reporting within 10 working days after the end of each quarter information such as the details of the operation of the custody funds and details of the investment projects of the pilot enterprise during the previous quarter to the general office and relevant entities of the Steering Committee;

(2)     submitting within 15 working days after the end of each fiscal year an annual report on the domestic equity investments during the previous year verified as consistent by each party of the pilot enterprise to the general office and relevant entities of the Steering Committee;

(3)     monitoring the investment operations of the pilot enterprise and if it discovers that its investment orientation violates state laws or regulations or breaches the custody agreement, refusing to execute the same and promptly reporting the same to the City Bureau of Financial Work; and

(4)     other monitoring matters as specified by the Steering Committee.

Article 26:     A pilot enterprise may carry out profit distribution or liquidation and divestment in accordance with its articles of association or partnership agreement.

When a pilot enterprise is to remit profit, dividends or extra dividends abroad, it shall submit to the custodian the investor's relevant tax payment certificate or tax record filing form, and may remit the same abroad only after the custodian's review.

When a pilot enterprise is dissolved, liquidated and deregistered, the relevant procedures shall be carried out as follows:

(1)     submission of a dissolution application, the resolution of management of the company concerning dissolution of the fund, the approval certificate for establishment of the fund and the business license to the general office of the Steering Committee;

(2)     establishment of a liquidation committee within 15 working days from the date of approval of dissolution, issuance of a liquidation report and submission of the same to the City Bureau of Financial Work for review and confirmation;

(3)     preliminary review by the City Bureau of Financial Work, rendering of a decision after seeking the opinion of the member entities of the Steering Committee and cancellation of its pilot qualifications;

(4)     remittance abroad in accordance with the law after recovery of the fund limit;

(5)     carrying out of tax, customs and foreign exchange deregistration procedures; and

(6)     carrying out of deregistration procedures with the administration for industry and commerce.

Article 27:     Divestment by a pilot enterprise may, in accordance with the law, be effected by the following means:

(1)     transferring all or part of the equity it holds in an investee enterprise to other investors;

(2)     executing an equity buyback agreement with an investee enterprise whereby the investee enterprise lawfully buys back the equity held by it;

(3)     an investee enterprise applying for a public listing on a securities market in China or abroad; a venture capital firm may lawfully transfer the shares it holds in an investee enterprise on a securities market; or

(4)     another method as permitted by Chinese laws or administrative regulations.

Article 28:     The City Bureau of Financial Work may familiarize itself with the circumstances of a pilot enterprise by means such as letter or telephone inquiry, visitation or requesting information from the custodian, and establish a public scrutiny mechanism.

If a pilot enterprise violates these Measures, the City Bureau of Financial Work shall ascertain the facts in concert with relevant departments. If the violation is ascertained, the City Bureau of Financial Work shall order the pilot enterprise to rectify the matter within 30 working days, and if it fails to do so, the City Bureau of Financial Work shall cancel its pilot qualification, publicly announce the same and, together with relevant departments, investigate and deal with the matter in accordance with the law, lawfully imposing sanctions depending on the severity of the circumstances. If a criminal offense is constituted, it shall transfer the case in accordance with the law to the judicial authorities for criminal prosecution.

Part Six: Supplementary Provisions

Article 29:     These Measures shall be effective 30 days after their issuance and remain in effect for three years.

Article 30:     Management Enterprises and Equity Enterprises registered and established before the implementation hereof shall strictly comply with relevant laws, regulations and rules; and those that satisfy the requirements hereof may apply for pilot qualifications in accordance herewith and carry out the pilot examination and approval procedures.

Article 31:     Each district may, pursuant to these Measures and in light of the actual circumstances in its jurisdiction, formulate implementing rules and implement the same after consent by the general office of the city Steering Committee.