China’s recent legislative developments bringing more opportunities to foreign fund investors

Introduction

China’s evolving legislative opening-up continues to offer new opportunities to foreign fund investors across investments in China’s equity, securities, and capital markets. Taken together, recent liberalisations reduce entry barriers, streamline market access, broaden eligible investment scope and exit pathways, and collectively create a more navigable, scalable, and durable platform for global capital deployment in China.

Equity investment

Foreign ownership restriction further liberalised in services industry in pilot cities

Following the issuance of the nationwide negative list in September 2024, which removed the last restrictions on foreign investment in the manufacturing sector, policy attention has shifted towards the services industry. In April 2025, the Ministry of Commerce released a work plan designed to accelerate the opening-up of the services sector across 20 pilot cities. The work plan sets out 155 pilot tasks across 14 key areas, including the following which further relax foreign ownership restrictions in the services sector:

• Telecom sector – Allowing up to 50% foreign ownership in joint ventures providing internet VPN services to foreign invested enterprises (FIEs) within the relevant pilot cities; removing foreign ownership caps on app store services (except where “the foreign investment is restricted”, while the law is not clear on this caveat, we understand that it is intended to exclude circumstances where the underlying business of an app offered through the app store is itself restricted or prohibited for foreign investment) and on internet access services (limited to providing internet access services to users).

• Healthcare sector – Allowing the establishment of non-profit making medical institutions through Sino-foreign joint donations; allowing the establishment of non-profit making elderly care institutions through foreign donations.

Onshore reinvestment by FIEs is encouraged

On 7 July 2025, seven major PRC authorities jointly issued policy measures to ease and encourage onshore reinvestment by FIEs by using their undistributed profits or lawful profits obtained by their foreign investors. Onshore reinvestment includes establishing new subsidiaries, injecting capital into existing subsidiaries, and acquiring assets or equity interests in domestic enterprises. Key initiatives include:

• Simplified license application by reinvested entities. Where an FIE establishes a wholly owned new enterprise that applies for an industrial license already held by the FIE, the competent authority should simplify the application procedures and shorten the review period if basic criteria are met.

• Streamlined formalities for loans needed for onshore reinvestment. Foreign shareholder loans and Panda bonds needed for onshore reinvestment by eligible FIEs will benefit from optimized formalities and green-channel eligibility.

• No foreign exchange registration required for onshore reinvestment. When FIEs conduct onshore reinvestment with foreign exchange capital (or the RMB converted therefrom), the invested enterprises or sellers no longer need to complete foreign exchange registration with the foreign exchange authority before receiving the investment.

Securities investment

2-year work plan to optimize the QFII regime

On 27 October 2025, the China Securities Regulatory Commission (the CSRC) unveiled a two-year work plan to optimize the Qualified Foreign Institutional Investor (QFII) regime, aiming to create a more transparent, convenient, and efficient environment for foreign investors and attract more medium-to long-term foreign capital. As background, the QFII regime is designed to allow foreign investors to directly make securities investment etc. into the Chinese market on a cross-border basis.

Notably, the work plan has addressed the practical needs and concerns of foreign investors during their QFII investments. Implementing rules are expected to be issued separately, which are expected to cover the following significant initiatives:

• To establish a green channel and simplified licensing mechanism for sovereign wealth funds, international organizations, pension funds, charitable funds and similar allocation-focused foreign investors.

• To gradually and continuously expand the scope of commodity futures and options available to QFIIs, supporting multi-asset allocation strategies and enabling trading and industrial foreign investors to hedge pricing risks under spot transactions more effectively.
• To align treatment of foreign mutual funds with domestic mutual funds by calculating short-swing shareholding ratios at the product/account level. In other words, if several separate mutual funds managed by a single fund manager (e.g. the QFII) together hold 5 percent or more of a listed company, the short‑swing lock-up period restrictions (i.e. no sale within 6 months after the purchase and vice versa) would not apply unless any single mutual fund, on its own, reaches or exceeds the 5% threshold.
• To optimize the regulatory framework for total return swap etc. transactions conducted via the QFII channel, with clear rules on market access, ongoing supervision, and penalties for violations.
• To allow domestic licensed institutions in providing securities investment advisory services to QFIIs, including exploring pathways for domestic institutions to offer discretionary advisory services.

Capital market investment

Shortened lock-up period for shares acquired by private funds in listed companies via material asset restructuring

On 16 May 2025, the CSRC issued revised measures for material asset restructuring of listed companies, which took immediate effect. Among the various changes, was a notable reform to shorten the lock-up period applicable to shares of listed companies acquired by private funds through material asset restructuring, thereby providing greater exit flexibility and encouraging private fund participation in mergers and restructurings of listed companies. 

More specifically:

• Where a listed company issues new shares to a private fund to acquire target assets managed by such private fund, if the private fund has continuously held the target assets for at least 48 months, the lock-up period for the new shares acquired by the private fund is reduced from 12 months to six months.
• In circumstances where the restructuring of a listed company constitutes a reverse takeover (i.e. a private fund owns a minority interest in an asset but such asset is later restructured into the group of the listed company so that the private fund becomes a minority shareholder of the listed company), as long as the private fund is not the controlling shareholder/actual controller (or their controlled affiliates) of the listed company and the private fund has held the abovementioned assets for at least 48 months, the lock-up period for the new shares acquired by the private fund is reduced from 24 months to 12 months.