China is preparing to raise the barrier to some forms of investment by foreign private equity funds, the Economic Observer reported.
The administration wants to tighten restrictions on the use of special purpose vehicles for mergers and acquisitions. Under the new rules foreign-funded special purpose companies that have not completed required registration procedures, and those that have completed procedures but have not operated continuously for three consecutive years, will not be allowed to undertake mergers and acquisitions in China.
Domestically funded companies that have set up offshore companies will also find it more difficult to use offshore special purpose vehicles for investment in China. They will need to prove the legality of their overseas operations, certify minimum continuous operation and show evidence of reporting for tax purposes.