China Matters: Draft Foreign-Invested Partnership Regulations New Possibilities for Global Funds in China?
By Paul Hastings Professional
On August 24, 2009, it was reported that the latest draft of the long-awaited Administrative Measures for the Establishment of Partnership Enterprises by Foreign Entities or Individuals in China (the Draft FIP Regulations) was approved in principle by the State Council of the Peoples Republic of China (the PRC), and has been returned to the Ministry of Commerce (MOFCOM) for further refinement.
It has been two years since the PRC Partnership Enterprises Law (Amended) (the Partnership Law) came into effect in June 2007. However, the Partnership Law provided for only partnerships among PRC legal persons, and called for the State Council to enact specific regulations for foreign-invested partnerships (FIPs). Since then, in the absence of a national legal framework for FIPs, Tianjin, Shanghai and Beijing all adopted their own local rules and structures to promote formation of RMB funds where foreign fund managers might participate indirectly through their direct or indirect subsidiaries established in China. In the meantime, foreign fund managers and investors remain intensely interested in FIPs because they most resemble the prevalent structure for most international and offshore funds. The Draft FIP Regulations, if adopted in the current form, should allow a foreign investor (subject, as always, to governmental approvals) to directly form a PRC limited liability partnership (LLP) as a general partner (GP), or to directly invest in a PRC LLP as a limited partner (LP).