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Lecture on "Analysis on Practical Operation of Foreign Investment and Listing in Hong Kong in the Context of New Foreign Investment Law" Held in Beijing

2019.04.26  

Author: Zhong Yin Law Firm   

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On April 26, 2019, a lecture on “Analysis on Practical Operation of Foreign Investment and Listing in Hong Kong in the Context of New Foreign Investment Law” co-organized by Zhong Yin Law Firm and Wolters Kluwer was successfully held in the Beijing office of Zhong Yin. In this event, our management committee member and partner Tan Jun, Niu Baoyuan and Zhang Huawei respectively delivered keynote speeches. Senior executives and chief legal officers from more than 60 companies including ZTE, NBA, IBM, Audi, Microsoft, CITIC Guoan and China Life attended the event.

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On March 15, 2019, at the Second Session of the 13th National People's Congress, the NPC deputies voted to adopt the Foreign Investment Law of the People's Republic of China (hereinafter referred to as the “Foreign Investment Law”), which will supersede the original Law on Sino-foreign Joint Venture, Law on Foreign-invested Enterprises, and Law on Sino-foreign Cooperative Enterprise and come into force as of January 1, 2020. The Foreign Investment Law makes unified provisions on the access, promotion, protection and management of foreign investment and becomes a new fundamental law in the area of foreign investment in China. All sectors of the society have paid close attention to the Foreign Investment Law. Foreign businessmen and related lawyers have considered many practical issues by combining their own business and practice.

Niu Baoyuan

Legal cooperation and competition between Chinese-funded enterprises and foreign-funded enterprises in the context of the Foreign Investment Law

Starting from the development history of China's foreign-funded enterprises, Niu Baoyuan explained the legal cooperation and competition between Chinese-funded enterprises and foreign-funded enterprises in the context of the new Foreign Investment Law. From the execution of a series of unequal treaties after the Opium War, to the gradual independence of the new China with the assistance of the Soviet Union, and then the attraction of foreign investment through various preferential policies in the context of reform and opening up, China’s opening up has experienced a tortuous process and then reached a higher level, complementing each other with the Belt and Road Initiative. According to the Foreign Investment Law, China will adopt a system of pre-establishment national treatment plus negative list, whereby foreign-invested enterprises may apply for enterprise registration directly and then may operate upon the registration, and foreign and domestic businessmen participate in the market and win government orders through fair competition. This is a huge improvement in China's investment promotion and is conducive to the healthy and long-term development of foreign-invested enterprises.

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Niu Baoyuan

Niu Baoyuan emphasized that the enterprises should pay more attention to comprehensive research on law in foreign negotiations, and issue the comprehensive and complete legal opinions based on specific circumstances (place, time, and people). Legal staff must not only have an international perspective but also improve their ability to collect information, so that their legal analysis is more conducive to cooperation. China has promoted technological innovation and advocated fairness and competition in international cooperation on intellectual property for many years without requiring foreign companies to transfer their technology. Even if European and American countries have always been called big IP powers, China still need to carefully review the gold content of their intellectual properties and consider the ownership of the technology improvements after cooperating with China.


Zhang Huawei

Influence of the Foreign Investment Law on the practical operation of foreign direct investment

With her extremely rich experience, Zhang Huawei summed up the influence of the Foreign Investment Law on the practical operation of foreign direct investment. For example, in accordance with the principle of “treating foreign and domestic investment the same way”, the establishment of and change to foreign-invested enterprises beyond the negative list might no longer be required to filed with relevant commerce committee (subject to future supporting regulations). Therefore, when purchasing the equity of a foreign-invested enterprise, one might consider not setting it as a condition for closing that the foreign-invested enterprise must be successful filed with relevant commerce committee. For another example, it is necessary to carefully consider whether protocol control under the VIE is a foreign investment or not. Zhang Huawei believes that, through applying the “enumerative provisions + miscellaneous provisions” to control protocol, the Foreign Investment Law retains the possibility of governing VIE as a type of foreign investment in the future. Therefore, legal staff should pay attention to the possible compliance risks associated with VIE.

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Zhang Huawei

In addition, in respect of the Foreign Investment Law, Zhang Huawei explained in detail and in turn many issues that need to be clarified, such as the implication of the provision that profits need not but remaining assets must be distributed in proportion to capital contribution, and the way to link with the Company Law during the five-year transition period.


Tan Jun

Introduction to Listing in Hong Kong

By combining his own expertise, Tan Jun analyzed the issue of listing in Hong Kong in the context of the Foreign Investment Law. Hong Kong's capital market takes a leading capital market in the world. Hong Kong has a mature listing system and a transparent regulatory mechanism, and the time required for going public in Hong Kong is shorter than that in the mainland, typically 6-9 months. The threshold for listing in Hong Kong is lower than that in the mainland. After listing, financing, merger & acquisition, spin-off, increase or decrease of shareholding, and other operations in the capital market may be conducted in a timely and flexible manner based on the market conditions, which is in line with the fundamental interests of a company's shareholders and investors.

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Tan Jun

Tan Jun also explained the conditions, process, and documents required for listing in Hong Kong. There are mainly two ways of listing in Hong Kong, namely, issuance of H shares and listing of red chips. In the case of issuance of H shares, one need not build any red-chip architecture or go through foreign exchange registration procedures, but before submitting listing application documents to the Hong Kong Stock Exchange, one needs to obtain an approval from CSRC, and after listing, the equity held by original shareholders may not be traded on the Hong Kong Stock Exchange. In the case of red-chip listing, the review and approval process is more streamlined, the equity may be traded more freely, but bridge loans and other capitals are needed. Only companies in an industry where foreign investment is restricted or prohibited may be listed in Hong Kong through VIE.

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The three lawyers respectively refined and shared their valuable experience accumulated during the past practicing years. The participants gained a lot. After the lecture, the three lawyers interacted with the participants. Although the event had lasted for 3 hours, the participants still actively asked questions with full enthusiasm. In the future, Zhong Yin Law Firm will hold forums and lectures on different topics based in line with market demands, in order to provide new ideas for clients' compliance management and risk prevention, and strengthen communication with clients, in order to find a new way for Zhong Yin lawyers to understand market trends.



Relevant lawyers

  • Tan Jun

    tanjun@zhongyinlawyer.com

    -Member of Management Committee

    -Senior partner

  • NiuBaoyuan(Bob)

    niubaoyuan@zhongyinlawyer.com

    -Practicing lawyer