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China's Revised Venture Capital Rules: Limited Partnerships with Chinese Characteristics?
February 28, 2003 | BY
clpstaff &clp articlesRules on foreign-invested venture capital enterprises were promulgated in 2001, but fell considerably short of expectations. New rules in this important area have recently been issued. Have they overcome the limitations of the prior rules?
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In August 2001, China released foreign investment rules intended to encourage foreign sponsors to form China-based venture capital funds. These rules (the 2001 Rules) imposed many non-market restrictions on fund formation and operation and were not successful in attracting investors to China.1 China revised those rules recently. We assisted in drafting the revised rules, entitled Rules on Administration of Foreign-invested Venture Capital Enterprises (the 2003 Rules), which overcome many of the prior barriers to onshore fund formation.
The 2003 Rules are officially targeted at "venture capital" sponsors and investors. However, because permitted investments are not limited to pure venture capital start-up situations, we believe the 2003 Rules can also be used by most private equity sponsors.