Other changes in investment rules pertain to the raising of overseas capital by Chinese citizens, who will be able to use domestic assets for establishing overseas special purpose vehicles (SPVs) as means to raise funds which may then be reinvested in China. The new regulation aims to "encourage, support and guide the development of the non-state sector" according to a State Administration of Foreign Exchange (SAFE) statement.
On the foreign exchange front, China is taking steps to loosen capital controls on multinational companies, unveiling a pilot program to allow some Chinese subsidiaries of multinationals to change yuan profits into foreign currency and lend the funds to their overseas counterparts, according to the SAFE website. The program, limited to qualified multinationals in Shanghai's Pudong area, may relieve some of the upward pressure on the yuan.
Meanwhile, China made clear that the status quo would apply in other areas. For one, the China Securities Regulatory Commission said it won't lift its freeze on initial public offerings in the near term, state media reported. New IPOs in domestic markets were suspended in April following the announcement of government plans to transfer non-tradable, state-owned shares in listed Chinese companies to the public domain.
China also will not relax the current caps on foreign investment in its banks in the near term, after raising hopes earlier when it said that a relaxation was being considered, the South China Morning Post reported. Yan Qingmin, a department director-general at the China Banking Regulatory Commission, said that foreign investors' combined holdings in a mainland bank will remain capped at 25%, with ownership by any single foreign investor staying at 20%. The rule doesn't bode well for Temasek Holdings, which faces scrutiny over plans to take a 10% stake in Bank of China. The Singapore government's investment arm already owns 5.9% of China Construction Bank and 4.55% of China Minsheng Bank.
VC fund rules overhauled
China said it would shore up the legal framework governing investment by venture capital funds, as part of efforts to improve transparency, Bloomberg reported. Beginning March 1, venture capital funds will be banned from investing in stocks, futures and warrants as well as in the real estate and insurance industries. Any unused funds may be deposited in banks or invested in government bonds and other fixed-income securities. Venture capital funds will be banned from investing more than 20% of their assets in one company under the new rules. Additionally, venture funds should have registered capital of at least US$3.7 million, with no more than 200 investors contributing below RMB1 million per investor.
China gets tough on polluters
The State Environmental Protection Agency (SEPA) announced in October it would penalize cities that fail to meet national air quality standards by warning investors against them, among other measures. The agency said it would also control construction projects that could worsen air pollution in cities. Separately, construction of the Dongfang Gold and Lead plant in Henan, which was set to produce 80,000 tpy, has been delayed be-cause emissions from the company's other plant exceeded state limits during trials in April 2004.
Antitrust law expected in 2006
China is completing its Antimonopoly Law with a piece of antitrust enforcement legislation that will see Beijing join Washington and Brussels as a required stop for companies seeking antitrust approvals ahead of global mergers, The Wall Street Journal reported. Drafting the law has taken more than 10 years, but work accelerated this year to complete final passage in early 2006.
Bribe-givers face public shame
The names of those who offered bribes since 1997 will be published in an official list in the latest campaign to fight corruption, said state media. This represents an extension of a practice used by provincial governments, which banned similarly listed building contractors from bidding on projects. Taking a bribe can be a capital offense in China, and those who offer them may face life imprisonment.
Coal mine corruption probed
Corruption between officials and coal mine businesses are to blame for the industry's high accident rate, said Li Yizhong, director of the State Administration of Work Safety Supervision. He made the remark as authorities revealed that 4,600 officials had admitted holding stakes in coal mines, and have since withdrawn US$58.6 million from the market after being ordered to divest themselves of coal-related holdings. Liu Xiaolong, deputy mayor of Fukang city in Xinjiang province was arrested on charges of complicity with a coal mine where a gas blast killed 83 people in July. He was in charge of work safety at the time of the explosion at the Shenyang coal mine.
New plans to restructure copper industry
In an effort to restructure China's over-invested copper industry, Beijing will raise barriers of entry and close down outdated copper plants, the South China Morning Post reported. The National Development and Reform Commission plans are reminiscent of the recent restructuring of China's steel industry in which large companies were bolstered while the position of smaller firms was weakened. Similar policy is being drafted for the aluminum and smelting industry, according to sources cited by the SCMP.