Overseas institutions encouraged to invest in domestic tech companies

China has rolled out a package of well-focused policy measures to facilitate investment by overseas institutions in Chinese technology-oriented enterprises, another step by the world's second-largest economy to attract more foreign investment and foster new quality productive forces.

The move aims to better cater to overseas institutions that seek greater stability and predictability in the business environment, as well as meet their demands for expanded investment channels, smoother exit channels and more convenient access to tax benefits, experts and executives said.

These efforts will not only strengthen China's position as a preferred destination for global business expansion, but also provide a wider range of investment options that will foster greater innovation and competitiveness in the domestic market, they added.

A notice that was jointly released on Friday night by 10 departments, including the Ministry of Commerce, the Ministry of Science and Technology and the People's Bank of China, highlighted the country's latest move to expand opening-up in sectors such as finance.

Related departments are required to take concrete steps to efficiently approve the qualification applications for the dollar-denominated qualified foreign institutional investor program, or QFII, and its renminbi-denominated sibling, RQFII, in accordance with the law.

Data from the China Securities Regulatory Commission showed that a total of 81 institutions were granted QFII status in 2023, representing a diverse range of global players from 15 countries, regions and international organizations.

Meanwhile, investment by overseas institutions in domestic sci-tech enterprises will be supported through the Qualified Foreign Limited Partner system, according to the notice.

The QFLP system refers to programs allowing overseas institutional investors, after obtaining qualification approval and passing other foreign-exchange funds supervision procedures, to convert their overseas capital into RMB funds to invest in private equities or the venture capital market in China.

Dong Zhongyun, chief economist at China AVIC Securities, said the extended investment horizon associated with qualified foreign investors may gradually reshape the overall investment landscape within China's capital market as their holdings of Chinese stocks and bonds increase.

China's capital market could benefit from the diversification and liquidity that qualified foreign investors can bring. Their long-term investment outlook can contribute to a more balanced and sustainable market ecosystem, reducing short-term volatility and promoting stability, Dong added.

Zhang Ying, managing director of Dassault Systemes Greater China, said, "With an unwavering commitment to further advance opening-up, China's influence in global industrial, supply and innovation chains has notably increased, providing new opportunities for multinational corporations like Dassault Systemes to tap into its market potential."

Zhang said the company has significantly benefited from China's optimized business environment during the past few years. Looking ahead, he said the company will continue to increase investment in the China market, scale up production and boost innovation and research and development.

In addition, according to the notice, venture capital funds established by overseas institutions within China will be treated on an equal footing with those established by domestic investors.

Noting that the issuance of bonds, particularly RMB bonds, by overseas institutions in the country can help diversify their funding sources and lower foreign exchange costs, relevant departments put forward measures to encourage eligible overseas institutions to issue such bonds in China, with a focus on the technology sector.

China is bolstering its support for technology-oriented companies backed by overseas institutions, enabling them to issue corporate credit bonds according to relevant laws and regulations while expanding the scale of their issuance, the notice said.

Bond issuance, particularly that of credit bonds, proves to be an effective solution for technology-based companies in alleviating financing difficulties caused by inadequate collateral, said an official from the Ministry of Commerce's financial department.

Recent data showed that as of the end of February, a total of 632 bonds issued by sci-tech companies were listed on the exchange market, with a combined value of 591.7 billion yuan ($81.7 billion).

Recognizing the importance of providing viable exit options for overseas investors, relevant departments have taken proactive steps regarding overseas listings, mergers and acquisitions, and share transfers as exit channels, according to the notice.

Xu Hongcai, deputy director of the China Association of Policy Science's Economic Policy Committee, said foreign investors often assess the ease of exiting investments as a key factor in their decision-making process.

The availability of streamlined and well-functioning exit channels will contribute to the overall attractiveness of the Chinese market and catalyze increased foreign investment in various sectors, Xu added.

Marc Horn, president of Merck China, said: "I'm very confident and optimistic on the long-term growth we've seen in China. I think China is very resilient and has shown that it can transform very rapidly and is on a good trajectory on transformation.

"We have spent 6 billion yuan over the past 10 years in China," Horn said. "We see this as an excellent next step for further investments and partnerships in China."