With the adoption in September 2006 of the new public company takeover and cross-border M&A regulations, Chinese government officials congratulated themselves on completing a set of world-class corporate laws. The centrepiece of this suite of legislation was the new PRC Company Law, which took effect on January 1 2007.
Judging from the response of foreign venture capital and private equity investors in China, such self-congratulations are premature. Foreign financial investors continue to set up their primary investment vehicles offshore where available structures are both more flexible and more stable, and thus better suited to support multiple rounds of debt and equity financings. The new Company Law makes a weak attempt to open the door to more complex corporate structuring onshore. But against the backdrop of a cumbersome and relatively simplistic legal infrastructure, onshore structuring options overall remain unattractive to most investors.
The corporate structuring requirements of foreign financial...