China Law Insight : China Law Insight: China Commercial and Intellectual Property Lawyers and Attorneys, Full Service Law Firm: King & Wood

The new version of the Insurance Law that came into force October 2009 made it clear that insurance companies would have more investment channels are open for insurance funds, specifically, the 2009 Insurance Law stated that investing insurance funds in real estate was acceptable. In September 2010, the CIRC promulgated the Provisional Measures for Insurance Capital Investment in Real Estate. This regulation provides the basic outline of what the types of real estate projects that insurance companies can invest in. Although this regulation is in place, it appears that the CIRC is not ready to approve insurance companies investing real estate projects, but announcement can probably be taken as evidence that CIRC is moving closer to being ready to approve insurance companies investing in real estate projects. Also based on Chairman Wu's statements it probably can be assumed that the first real estate project that insurance company investing will be located in Shanghai, and it most likely be a housing project that is subsidized to keep its prices affordable.

If you have any questions about the potential for insurance funds to be invested in real estate development projects, or if you would like more details on the Provisional Measure for Insurance Capital Investment in Real Estate please contact us.

The information contained in this post is available at: http://www.chinadaily.com.cn/usa/business/2011-03/07/content_12130923.htm

Prior to the promulgation of the Pilot Measures, the Shanghai Financial Services Office, in conjunction with the Shanghai Administration for Industry and Commerce, State Taxation Bureau of Shanghai Municipality and Local Taxation Bureau of Shanghai Municipality, issued a notice on industrial and commercial registration of equity investment enterprises in Shanghai (Hu Jin Rong Ban Tong [2008] No. 3) ("Notice") on August 11, 2008. The Notice specifies the basic conditions for equity investment management enterprises. But in practice, the examination and approval authorities or the registration authorities generally only apply the provisions regarding equity investment management enterprises in the Notice to domestic enterprises and not foreign enterprises.

I. Mandatory Requirements for Establishment of Foreign-invested Equity Investment Management Enterprises

According to the Pilot Measures, foreign-invested equity investment management enterprises refer to Sino-foreign equity or contractual joint ventures, or wholly-foreign owned enterprises, which are incorporated in Pudong New Area by foreign companies, enterprises, other economic organizations or individuals, and mainly engage in equity investment management upon entrustment of equity investment enterprises.

Meanwhile, the equity holders and senior management personnel of the foreign-invested equity investment management enterprises shall satisfy certain legal requirements, including: (1) a foreign-invested equity investment management enterprises shall have at least one investor (equity holder), and the business scope of the investor or its affiliates shall include equity investment or equity investment management; (2) when applying for incorporation, the foreign-invested equity investment management enterprise shall have more than two senior managers with over two years experience in equity investment or equity investment management and they shall have over two years experience in senior management positions.

According to the Pilot Measures, a foreign-invested equity investment management enterprise shall be incorporated as a limited liability company with a registered capital of USD 2,000,000 or more.
 

An established foreign-invested enterprise that meets the forgoing conditions may apply for conversion into a foreign-invested equity investment management enterprise.

II. Preferential Treatment for Foreign-invested Equity Investment Management Enterprises

The Shanghai Pudong New Area Financial Services Office and Finance Bureau published the Circular on Issuance of Opinions on Promoting Development of Equity Investment Enterprises and Equity Investment Management Enterprises in Pudong New Area ("Opinions") on December 15, 2008, and Implementing Rules on Promoting Development of Equity Investment Enterprises and Equity Investment Management Enterprises in Pudong New Area ( "Implementing Rules") in March 2009. The Opinions and Implementing Rules set forth preferential and supporting policies for equity investment enterprises and equity investment management enterprises. These policies include:

(a) "For an equity investment management enterprise incorporated as a company, its chairman, vice chairman, general manager and deputy general manager shall receive 40% of their respective paid annual income tax as a subsidy, and the core staff acting as investment manager or project manager shall receive 20% of their respective paid annual income tax as a subsidy;
(b) For an equity investment management enterprise incorporated as a company managing a capital of RMB 1,000,000,000 or more, its chairman, vice chairman, general manager and deputy general manager shall each receive housing or lease subsidy of RMB 200,000 in a lump sum.
(c) An equity investment management enterprise, which is entrusted by an equity investment enterprise incorporated as a partnership to conduct equity investment management business, may receive an award in a lump sum based on the funds actually raised by the equity investment enterprise in the current year: an award of RMB5 million where RMB1 billion is raised; an award of RMB10 million where RMB3 billion is raised, or an award of RMB15 million where RMB5 billion is raised. The amount of the award shall be increased for enterprises which provide substantial contribution to the development of Pudong financial industry."

III. Approval Authority and Procedures for Establishment of Foreign-invested Equity Investment Management Enterprises

The establishment of foreign-invested equity investment management enterprises, either by incorporation or conversion, requires the approval from Shanghai Pudong New Area Economic Commission (the "Pudong Economic Commission"). According to Pudong Economic Commission, the preparation of documents and approval procedure for the application for establishment of foreign-invested equity investment management enterprises is similar to that required for establishment of general foreign-invested enterprises.

Upon accepting the application, Pudong Economic Commission will also consult with Pudong Finance Office regarding the application materials. Pudong Finance Office will then examine and appraise the qualification of the equity holders and senior management personnel of the foreign-invested equity investment management enterprises. Before approving an application, Pudong Economic Commission will verify whether the said equity holders and senior management personnel are qualified according to the Pilot Measures.

The promulgation of the Pilot Measures has given the green light for incorporation of equity investment management companies by foreign equity investment entities in Pudong New Area. However, the Pilot Measures, which have not established detailed rules for their implementation, need to be refined by relevant authorities in the future.
 

The Shanghai authorities have recently issued Encouraging the Establishment of Regional Headquarters by Foreign Multinational Corporations Provisions. As the name indicates, these provisions are aimed at encouraging multinationals to come to the city on the Huangpu for their regional HQ. The new provisions:

• Shorten the approval process to 10 working days (used to be 30 working days)
• Lower minimum investment to USD 10 million (down from USD 30 million)
• Opened up new areas of activity including domestic distribution, import/export, logistics, takeover shared services, outsourcing and most importantly, centralization of the finance management service of its enterprises in China is allowed.
• Eases hiring non-Shanghai residents
• Eases permanent residence for expatriates

There is also the promise of more to come with corresponding implementation regulations expected to be issued by the Municipal Foreign Economic Relations and Trade Commission. The initial provisions do address some important points such as lowering the minimum investment and broadening the scope of services but many of the new policies are not particularly attractive (i.e. quicker approval – few are so desperate; ease of permanent residence for expat – unlikely to be a core strategic concern for the multi-national). Perhaps the most important item to be addressed would be whether existing entities can be converted into regional HQs (note only investment or management companies can be regional HQs) and also reduction of tax for the high paid expats – not that they deserve it but to allow Shanghai to compete on an income tax basis with Hong Kong and Singapore. Perhaps these issues will be addressed by the forthcoming regulations.