Investing in Pre-IPO-Stage PRC Companies

Opportunities to invest in Chinese companies that plan to list on a domestic exchange have gradually matured. Since the majority of share reforms were completed in September 2006, the shares previously issued by companies during initial public offerings (IPOs) are now freely tradable on domestic exchanges. Moreover, the central government has revised the IPO approval process. As a result, European and US private equity investors view public listing as the best withdrawal mechanism for their investments, and one that has already demonstrated its effectiveness in China. Nonetheless, the requirements of the PRC Company Law (中华人民共和国公司法)andPRC Securities Law (中华人民共和国証券法)for companies to list on an exchange remain quite strict, so it remains difficult for small- and medium-sized private companies to list. Private equity investment has therefore become a popular shortcut for companies intending to list on the domestic exchanges.