On November 1, 2024, the Ministry of Commerce of China, together with five other governmental departments, issued the newly revised Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors (the “New Measures”). The New Measures introduce several key changes to the regulations governing foreign strategic investments in A-share listed companies and cross-border share swaps. The New Measures will take effect on December 2, 2024.

We have analyzed and listed below the key changes introduced in the New Measures.

1. Enhanced Regulatory Framework

Under the New Measures, qualified Foreign Investors (as defined in the New Measures) can make strategic investments in A-share listed companies in most sectors. Similar to the Foreign Investment Law, the New Measures also adopt a negative list management model for foreign strategic investments in A-share listed companies. Specifically, Foreign Investors are not allowed to make strategic investments in “prohibited sectors” listed on the negative list. To invest in “restricted sectors” listed on the negative list, Foreign Investors must comply with the negative list’s restrictions, including requirements for shareholding, senior management, or other conditions.

Foreign Investors making strategic investments in A-share listed companies that are not in the sectors that are listed on the negative list are no longer required to obtain approval from the Ministry of Commerce, and only need submit relevant investment information after completing the investment. However, for investments in restricted sectors, administrative approval from the relevant regulatory authority is still required.

2. Expanded Scope of Eligible Investors

• Foreign individuals are now permitted to invest strategically in A-share listed companies: “Foreign Investors” are defined in the New Measures as foreign individuals, enterprises, or other entities, and clarify that investors from Hong Kong, Macao, Taiwan, and investors who are Chinese citizens residing abroad and who make strategic investments in A-share listed companies are also subject to these regulations.
• Lower asset requirements for foreign investors: To qualify to make strategic investments in A-share listed companies, Foreign Investor must possess at least $50 million in the total actual overseas assets (revised from $100 million as in older version of regulations), or manage at least $300 million in the overseas assets (revised from $500 million as in older version of regulations). However, if a Foreign Investor intends to become the controlling shareholder of an A-share listed company, the original thresholds of $100 million and $500 million will still apply.

3. Additional Transaction Methods and Conditions

• Addition of tender offer: In addition to private placements and negotiated transfers, the New Measures introduce tender offer as a transaction method.
• Share subscription via bidding: The New Measures specify the procedures for Foreign Investors to purchase new shares through bidding.
• Cross-border share swaps permitted as an investment and payment method: The New Measures clarify that Foreign Investors may use shares of overseas companies held by them or newly issued shares of such overseas companies as consideration for their strategic investments in A-share listed companies. However, it is important to note that when newly issued shares are used as consideration for such investments, these transactions remain subject to restrictions under the Company Law of the PRC (2023 Revision), which prohibits an A-share listed company’s controlled subsidiary from acquiring shares of that listed company.
• Reduction of shareholding thresholds: The New Measures remove the minimum shareholding requirement for acquisitions through private placement and lower the required shareholding percentage for strategic investments through negotiated transfers and tender offers to 5%.
• Shortened lock-up period: The New Measures has reduced the lock-up period for A shares acquired by Foreign Investors through strategic investment from three years to 12 months.

4. Detailed Due Diligence Responsibilities of Domestic Intermediaries

The New Measures also clarify that Foreign Investors must engage a financial advisory firm, sponsor, or law firm registered in China as an intermediary to conduct due diligence with respect to whether the Foreign Investors have the requisite qualifications and comply with the fundamental principles for foreign strategic investment, whether the investment sector falls under the scope of a negative list, or raises national security concerns, etc.