Introduction

Two recent regulatory developments in China indicate that the central government is now openly encouraging the establishment of onshore RMB funds by foreign fund managers.

Although the developments are encouraging, further regulatory clarification and guidance will be needed before the gates are considered “open”.

In December 2009, the State Council announced it would permit foreign enterprises and individuals to establish foreign invested partnership enterprises (FIPs) in China with effect from 1 March 2010 (the State Council Measures).

This change is underpinned by the State Administration for Industry and Commerce (SAIC) Administrative Rules on Registration of Foreign-invested Partnership Enterprises (the SAIC Rules) coming into effect on the same date.

Whilst the changes do leave some questions, the combined effect of these rules is that onshore RMB funds in the form of FIPs (FIP RMB Funds) now offer an attractive alternative to the Foreign-invested Venture Capital Investment Enterprise (FIVCIE) - the investments of which are restricted to primarily to high technology/new technology investments. News media reported that the first FIP RMB Fund has been registered in Pudong, Shanghai and got its business licence on 3 March, the third day of coming into effect of the State Council Measures and the SAIC Rules.

In this article, we set out a comparative analysis of FIPs and other investment entities available for foreign investment in China.

The table below summarises certain of the key elements of the alternative investment structures into China: the FIP, the FIVCIE and the “ordinary FIE” in the form of a limited liability company (LLC).

FIPs, FIVCIEs and FIEs: Comparison of principal features