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China reopens the door to offshore restructurings for overseas private financings and IPOs

In a rare about-face, China's State Administration of Foreign Exchange (SAFE) has replaced regulations issued earlier this year that had stifled the market for private equity financings and overseas listings. Clifford Chance look at how the new system will lessen some of these hurdles.

On 21 October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Vehicles ("Notice 75") which, as of 1 November 2005, replaces the controversial SAFE Notices 11 and 29.

Notices 11 and 29 sought to regulate the overseas investment activities of domestic enterprises and individuals in a bid to control capital outflow from China through offshore restructurings.

These earlier SAFE Notices received much criticism from both the domestic and international investment community as they created hurdles, which in practice proved almost insurmountable, for Chinese entrepreneurs who wished to restructure their domestic businesses under an offshore holding company as a prelude to overseas fund-raising activities.

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