The offshore holding company structure widely used by Chinese entrepreneurs to obtain overseas venture capital and private equity investment, engage in cross-border trade sales, and undertake overseas initial public offerings has been significantly impacted by two new circulars from the State Administration of Foreign Exchange (SAFE)

On August 8, 2006, the Ministry of Commerce ("MOFCOM"), joined by the State-owned Assets Supervision and Administration Commission of the State Council, State Administration of Taxation, State Administration for Industry and Commerce, China Securities Regulatory Commission ("CSRC") and State Administration of Foreign Exchange, amended and released the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (the "M&A Rules").

As our readers know, foreign investments into the People’s Republic of China ("PRC") are typically structured through one or more holding companies domiciled in offshore jurisdictions.

Recent regulatory changes for the first time allow foreign investors to directly acquire shares in a company listed in a Mainland China stock exchange. This expands further the investment opportunities for foreign strategic and financial investors.