For the purpose of the investment business in China, the foreign investors may set up and register the private investment fund manager either as FEM or FSM, and in the form either as wholly foreign-owned enterprise or equity joint venture.
Upon the issuance of FAQ10, you may set up an FSM by the way of wholly foreign-owned enterprise or equity joint venture. Specifically, in accordance with the first answer to the first question under FAQ10 as follow:
“According to the policy outcomes achieved in the seventh and eighth China-U.S. Strategic and Economic Dialogues and the seventh China-UK Economic and Financial Dialogue, upon approval by the China Securities Regulatory Commission, a wholly foreign-owned or equity joint venture private securities fund management institution should be registered as a private securities investment fund manager with the Asset Management Association of China and meet the following conditions in order to carry out the private securities fund management business within the territory of China.”
It is explicit to point out that the form of FSM shall either be wholly foreign-owned enterprise or equity joint venture, and the eligible foreign investors may have its discretion to set up wholly foreign-owned enterprise and holding 100% equity interest to carry out the private securities business in China.
As mentioned above, you may intend to set up a wholly foreign-owned enterprise or equity joint venture in accordance with the Foreign Investment Law. No matter which form to be chosen, the wholly foreign-owned enterprise or equity joint venture shall be entitled to enjoy relevant rights and interests and comply with the obligations in accordance with the Foreign Investment Law, and key points are as follows:
Under Section 4 and Section 28 of the Foreign Investment Law, foreign investment, (we understand, including the set-up of FEM and/or FSM, no matter through wholly foreign-owned enterprise or equity joint venture), shall be entitled to the pre-establishment national treatment and comply with the negative list.
As mentioned above, currently the PRC Negative List and the FTZ Negative List are the foremost polices. Other than Section 22 (Finance) in PRC Negative List and Section 19 in FTZ Negative List that promulgated the restriction of the shareholding percentage of foreign investors in a securities investment fund management company, which we understand is mainly in relation to the public offering, rather than private offering, there is no other restriction in the Negative List to the set-up of the foreign private securities manager.
Section 21 of the Foreign Investment Law provides an encouraging and positive policy to the foreign investment and freedom to transfer the investment and/or profit inward and outward of China, which brings a great attraction to foreign investors to set up the FEM and/or FSM and carry out private investment business in China.
There is a great and positive change to the protection of intellectual property of the foreign investment in accordance with Section 22 of the Foreign Investment Law. The legitimate rights and interest of the holders of intellectual property rights will be well protected from any infringement.
Application to the Company Law and Partnership Enterprise Law
Compared with the Previous Foreign Law, the Foreign Investment Law explicitly points out that the foreign-funded enterprise shall be subject to the provision of the Company Law of the People’s Republic of China (the “Company Law”)(公司法), and the Partnership Enterprise Law of the People’s Republic of China (中华人民共和国合伙企业法), in accordance with Section 31 of the Foreign Investment Law.
Specifically, unlike the equity joint venture, or the cooperative joint venture, or the wholly foreign-owned enterprise established under the Previous Foreign Law, the highest power authority to the foreign-funded enterprise (including but not limited to the wholly foreign-owned enterprise or equity joint venture) under Foreign Investment Law shall be the Shareholder’s meeting, rather than the board of directors. It is a great change and more consistent with the Company Law.
The establishment of the FPM shall comply with the general requirements and we are going to outline the steps as follows for your reference:
Step1: select the location for the establishment of the FPM and obtain the approval to the business scope thereof.
As per our prior experience and consulted with relevant competent Administration for Industry and Commerce (the “AIC”)(工商管理局/市场监督管理局), it is becoming more and more difficult for investor(s) to set up an a wholly-foreign-owned enterprise or equity joint venture with the business scope involving the wordings like “investment and management” or “asset management”, due to the explosion of the breach in P2P industry in the past recent years.
In addition, the approvals of relevant finance department, sub-district office, police department shall also be obtained, provided that, the timeline and procedure to obtain such approvals are still uncertain right now and will be subject to actual practice and consultation results with the aforesaid authorities accordingly.
Step2: name pre-verification with the competent AIC
It may take AIC about 3-4 business days to review the application documents upon the date of the receipt thereof and issue the enterprise name pre-verification notice(企业名称预先核准通知书), pursuant to which the pre-approved enterprise name of the FPM will be reserved for six months.
Step3: registration with AIC and issuance of the business license It normally takes AIC around 1-2 weeks to issue the business license if Step 1 -3 have been successfully completed.
Step4: post-establishment registration with various local government authorities After receiving the business license, the FPM must register with relevant authorities, mainly including the followings:
• Carving the company chop (公章), finance chop (财务章), legal representative chop (法人章), invoice chop (发票章) and other chops;
• Obtaining the foreign exchange registration certificate (外汇登记证) and the approval of opening the registered capital account (资本金账户);
• Obtaining the approval for opening the RMB bank account and opening the RMB accounts;
The timeline to complete the above post-establishment registration will be subject to the actual practice.
To our knowledge, Step 1 above is the most important part of the establishment of an FPM with the business scope involving “investment and management” or “asset management” so far. And we are willing to advise you to communicate with relevant authorities in advance and help you on this matter. Upon your further request, we would be pleased to advise you on the documentation requirements in connection with the above-mentioned registration and approval procedures.
The distribution of profit becomes the most important issue to the foreign investors in the recent years. With the Reform and Opening-up and the effectiveness of Foreign Investment Law, it is going to be more comfortable and positive to the foreign investors. In accordance with the Section 7 under the Circular of the State Administration of Foreign Exchange on Further Advancing the Reform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance (the “Circular”)(国家外汇管理局关于进一步推进外汇管理改革完善真实合规性审核的通知) and the Section 21 of Foreign Investment Law, the profits of an FPM may be exchanged into foreign currency and remitted out of China to the foreign shareholder thereof, upon the satisfaction of the following requirements:
For the convenience, we are going to outline the general procedure of profit remittance for your reference as follows:
Step1: convene and hold the board of directors and issue the resolution of the board of directors with respect to the previous year profit’s remittance to the foreign shareholder out of China;
Step2: engage an accounting firm to audit the relevant annual financial statements of the FPM and issue an audited financial statements or financial reports, which shall be submitted to the State Administration of Foreign Exchange (the “SAFE”)(国家外汇管理局), State Administration of Taxation (the “SAT”)( 国家税务局) and other competent authorities (if needed);
 “The State shall implement the management systems of pre-establishment national treatment and negative list for foreign investment. For the purpose of the preceding paragraph, pre-establishment national treatment refers to the treatment given to foreign investors and their investment during the investment access stage, which is not lower than that given to their domestic counterparts; negative list refers to special administrative measures for the access of foreign investment in specific fields as stipulated by the State. The State shall give national treatment to foreign investment beyond the negative list. The negative list will be issued by or upon approval by the State council.” Section 4, Foreign Investment Law of the People’s Republic of China, effective date of 2020.01.01.
 “Foreign investors shall not invest in any filed forbidden by the negative list for access of foreign investment. For any filed restricted by the negative list, foreign investors shall conform to the investment conditions provided in the negative list. Filed not included in the negative list shall be managed under the principle that domestic investment and foreign investment shall be treated uniformly.” Section 28, Foreign Investment Law of the People’s Republic of China, effective date of 2020.01.01.
 “The proportion of foreign capital invested in a securities company shall be less than 51 percent, the proportion of foreign capital invested in a securities investment fund management company shall be less than 51 percent (this limit on the foreign shareholding proportion will be canceled in 2021).” Section 22, PRC Negative List, effective date of 2019.07.30.
 “The proportion of foreign capital invested in a securities company shall be less than 51 percent, the proportion of foreign capital invested in a securities investment fund management company shall be less than 51 percent (this limit on the foreign shareholding proportion will be canceled in 2021).” Section 19, FTZ Negative List, effective date of 2019.07.30.
 “A foreign investor may, in accordance with the law, freely transfer inward and outward its contributions, profits, capital gains, income from asset disposal, royalties of intellectual property rights, lawfully obtained compensation or indemnity, income from liquidation and so on within the territory of China in CNY or a foreign currency.” Foreign Investment Law of the People’s Republic of China, effective date of 2020.01.01.
 “The State shall protect the intellectual property rights of foreign investors and foreign-funded enterprises and protect the legitimate rights and interests of holders of intellectual property rights and relevant right holders; in case of any infringement of intellectual property rights, legal liability shall be investigated strictly the legal liability in accordance with the law.” Foreign Investment Law of the People’s Republic of China, effective date of 2020.01.01.
 “The organization form, institutional framework and standard of conduct of a foreign-funded enterprise shall be subject to the provision of the Company Law of the People’s Republic of China, the Partnership Enterprise Law of the People’s Republic of China, and other laws.” Section 31, Foreign Investment Law, effective date of 2020.01.01.
“Continuously implement and improve the outward and remittance management policy for foreign exchange profits from direct investment. Where a bank remits profits of a domestic institution equivalent to more than USD50,000 (exclusive), it shall, based on the principle of real transaction, review the profit distribution resolution of the board of directors (or profit distribution resolution of partners) relating to such profit remittance, the original of tax record form, and audited financial statements, and shall seal on the original of tax record form indicating the amount and date of such remittance. The domestic institution shall make up the losses of previous years in accordance with the law before profit remittance. Section 7, the Circular of the State Administration of Foreign Exchange on Further Advancing the Reform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance.