錢伯斯｜2023中國私募股權(quán)趨勢與發(fā)展 Private Equity 2023

CHAMBERSGLOBALPRACTICEGUIDES

PrivateEquity

2023

Definitivegloballawguidesoffering

comparativeanalysisfromtop-rankedlawyers

China:Trends&Developments

StevenYuandJiaGuo

GlobalLawOffice

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CHINATrendsanddevelopmenTs

TrendsandDevelopments

Contributedby:

StevenYuandJiaGuo

GlobalLawOffice

GlobalLawOffice(GLO)datesbackto1979,whenitbecamethefirstlawfirminthePeople’sRepublicofChina(PRC)tohaveaninternationalperspective,fullyembracingtheoutsideworld.Withmorethan500lawyerspractisinginitsBeijing,Shanghai,ShenzhenandChengduof-fices,GLOistodayknownasaleadingChineselawfirmandcontinuestosetthepaceasoneofthePRC’smostinnovativeandprogressivelegalpractitioners,includingintheprivateeq-uityandventurecapitalsector.Notonlydoesit

havevastexperienceinrepresentinginvestors,butithasalsoextensivelyrepresentedfinanc-ingenterprisesandfounders.Withadeepun-derstandingofthebestlegalpracticesandde-velopmenttrendsofeachinvestmentterm,theteamatGLOknowshowtofindthemosteffec-tivebalanceofinterestsintermsofnegotiationsoastorealiseall-winresults.Vastpracticalex-perienceandindustrialbackgroundknowledgeenableGLOtoenhancevalueineveryprocessoftheclientinvestmentcycle.

Authors

StevenYuisapartnerofGlobalLawOfficebasedinShanghai.

Hehaslongfocusedhispracticeontheareasofprivateequity

andventurecapital,M&A,fundformationandcapitalmarket

transactionsacrossawidespectrumof

industries,includingthemanufacturing,

automobile,chemical,logistics,TMT,fintech,consumerstaples,environmentservices,

pharmaceuticals/healthcare,cleanenergy,

commercialproperty,entertainment,educationandtourismsectors.Thelegalservices

renderedbyhimtypicallyincludeadvisingon

structuretransactions,conductingdue

diligence,drafting,reviewingandnegotiatingdocuments,renderinglegaloradvisory

opinionsaswellasassistingwithclosingmattersandcompletionofgovernment

approvalprocedures.

JiaGuoisapartnerofGlobal

LawOfficebasedinBeijing.Jiaspecialisesinprivateequityandventurecapital,M&A,capital

markets,assetmanagementandgeneralcorporatepractice

areas.Industrieswithwhichhehasbeen

involvedincludeenergyandresources,realestate,infrastructure,education,advertising

andmedia,telecoms,hi-tech,internet,

financialservices,bigdata,entertainment,andpharmaceuticalandmedicalservices.Inthe

M&A,privateequityandventurecapitalareas,Jiahasadvisedonmorethan80cases,

representingbothfinancialandindustrial

investorsandfundraisingcompanies.Incapitalmarkets,hispracticeexperiencealsoincludes

HongKonglistings,USlistings,A-sharelistings,NEEQlistingsanddebtofferings.

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CHINATrendsanddevelopmenTs

Contributedby:StevenYuandJiaGuo,GlobalLawOffice

GlobalLawOffice

15&20/FTower1

ChinaCentralPlace

No81JianguoRoadChaoyangDistrict

Beijing100025

China

Tel:+861065846688

Fax:+861065846666

Email:global@

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US-ChinaTensionsWillReshapetheUSOutboundInvestmentRegime

On9August2023,PresidentBidenissuedanExecutiveOrder(EO)toaddressUSinvest-mentincertainnationalsecuritytechnologiesandproductsinthePRCincludingHongKongSARandMacauSAR.TheEOrequirestheUSDepartmentofTreasurytoworkwiththeUSDepartmentofCommerceandotheragenciestoputintoplaceanarrayofimplementationregula-tionstoestablishamechanismthatcouldiden-tifyanddifferentiate“notifiable”vs“prohibited”outboundtransactionsintermsofextentofthethreatthatmaybeposedtothecountry’snation-alsecurity.TheEOwillcomeintoeffectfollow-ingtheissuanceofimplementingregulationsbytheUSDepartmentofTreasuryanddoesnotsetadeadlinefortheseregulationstobeissued.Giventhe45-daycommentperiodandthetimeitwilltaketodevelopimplementingregulations,thenewoutboundinvestmentregimewilllikelynotcomeintoeffectuntil2024.

TheEOechoedthelong-anticipatedmovesexpandingthecurrentUSgovernmentalcontrolfromtheareasofinboundinvestmentintotheUSandtechnologyandcommodityexporttosanc-

tionedpersonsandcountries,totheareaofout-boundinvestmentbyUSpersonsintocountriesofconcern,mostlynotably,China.SincethisissimilartothecurrentCommitteeonForeignInvestmentintheUnitedStates(CFIUS)reviewregimeaimingatprotectingnationalsecurity,butinanoppositedirection,itisthereforecolloqui-allyknownas“ReverseCFIUS”.Such“ReverseCFIUS”canbedatedbackto6June2022,whensevenUSCongressmembersledbipartisanefforttoproposeanamendmenttotheInno-vationActaimedatreviewingandlimitingUSinvestmentintocountriesofconcernorthoseconsidered“foreignadversaries”likeChinaincertainindustriesonnationalsecuritygrounds.ThiswasfollowedbythereleaseofanewdraftoftheNationalCriticalCapabilitiesDefenseActon13June2022,arevisedversionoftheorigi-nallyproposedlegislationthatwascirculatedin2021,aimingtoaddressnationalsecurityriskbyestablishinganexpansiveoutboundinvestmentreviewregime.TheEOwasissuedaftertheUSSenateapprovedaddingameasuretothe2024NationalDefenseAuthorizationActinJuly2023thatwouldrequiremandatorynotificationsofcertaininvestmentsinChina,Russia,IranandNorthKorea.

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TheEOtargetsthefollowingthreecategoriesof“coverednationalsecuritytechnologiesandproducts”:(1)semiconductorsandmicroelec-tronics,(2)quantuminformationtechnologiesand(3)artificialintelligence.TheEOisantici-patedtotargetonlycertaintypesofinvestmenttransactionssuchasequitytransactions(eg,viamergersandacquisitions,privateequity,venturecapitalandotherarrangements),green-fieldinvestments,jointventuresandcertaindebtfinancingtransactionsthatareconvertibletoequity,however,targettransactionsenteredintotoevadetheprohibitionsundertheEOarealsoregulated.Forexample,aUSpersonwillnotbeabletoknowinglyinvestinathird-countryentitythatwillusetheinvestmenttoparticipateinatransactionwithacoveredforeignpersoninacountryofconcern.

Theabove-describedUSregulatorydevelop-mentoccurringmorethanayearagoappearstohavehadasignificantimpactontheChineseprivateequityandventurecapitalmarket,bothforfundraisingandforinvestment.AccordingtostatisticsreleasedbyZero2IPOResearch,RMBinvestmentisstillthedominantforceinthemar-ketinthefirsthalfof2023andtheconcentrationhasfurtherincreased.Specifically,thenumberofRMBinvestmentcasesandtheinvestmentamountwere3,320andRMB234.071billion,respectively,reflectingayear-on-yeardropof35.6%and39.9%.Atthesametime,thenumberofforeigncurrency(primarilyUSD)investmentcasestotaled155,reflectingayear-on-yeardropof76.2%,andthedisclosedinvestmentamountwasCNY58.894billion,reflectingayear-on-yeardropof49%,whichwas2.1timesand1.2timesofthedeclinerateofRMBinvestmentrespec-tively.Thefocusedindustryareasofinvestmentinthefirsthalfof2023includesemiconductorandelectronicequipment,biotechnology/medi-calandITindustries,withatotalof2,271invest-

menteventsinthethreeareas,accountingfor62.4%.

RegardlessofwhattheregulationsissuedbyUSDepartmentofTreasurywillultimatelylooklike,the“ReverseCFIUS”isontheway.Inantici-pationoftheseregulations,USpersonsshouldcarefullyevaluatetheirinvestmentstrategiesinforeigncountries,especiallyChina.FromChina’sperspective,acontinuousandstableutilisationofforeigncapitalininnovativeandhigh-endtechareascouldfacesomechallengestobeover-comeinthenextdecade.

MeasuresforRegistrationandFilingofPrivateFundsSubstantiallyRaisedtheThresholdfortheRegistrationofFundManagers

InmainlandChina,fundmanagersarerequiredtocompleteregistrationprocedures,whichdonotamounttoapermissionorapprovalfromalegalperspective,intheAssetManagementAssociationofChina(AMAC)beforeraisingaprivatefund.On1May12023,theMeasuresforRegistrationandFilingofPrivateFunds(the“RegistrationMeasures”)promulgatedbyAMACcameintoeffect.TheRegistrationMeasuresraisethethresholdfortheregistrationoffundmanagersandintroduceastrengthenedsupervi-sionbytheAMACcomparedwiththepreviousrules.

TheRegistrationMeasuresimposehigherstand-ardsfortherequiredexperienceandprofes-sionalabilityofseniormanagementpersonneloffundmanagersandalsorequireapplicantstoprovideevidenceoftheirexperienceinthesubmittedmaterials.Meanwhile,thecontrollingshareholder,actualcontrollerorgeneralpartneroffundmanagers(ifany)arerequiredtohavemorethanfiveyearsofrelevantpracticeexperi-enceinthefundmanagementorrelatedarea.

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AlltherequirementsmentionedaboveandotherrelatedrestrictionsintheRegistrationMeasuresaremeanttoexcludeapplicantswithoutsuffi-cientexperienceinequityinvestmentandpri-vatefundmanagementfromenteringintothebusinessofprivatefundsmanagement.

Inresponsetothelicence-sellingbehavioroffundmanagersfoundinthepast,AMAChasalsotakennewprecautionarymeasureswhichrequirethatthechangeofcontrolofafundman-agershallnotbedonewithinthreeyearsaftertheregistration,whilethemanagementscaleofthetargetfundmanagerinthelastyearshallnotbelessthanRMB30million.

RegulationsontheSupervisionand

ManagementofPrivateInvestment

FundsFurtherStrengthenedPrivateFundSupervision

On9July92023,theStateCouncilofthePeo-ple’sRepublicofChinapromulgatedtheRegu-lationsontheSupervisionandManagementofPrivateInvestmentFunds(the“PrivateFundsRegulations”).ThePrivateFundsRegulations,whichcameintoforceon1September2023,arethefirstadministrativeregulationsinthefieldofprivateinvestmentfunds.Itspromulga-tionmarksafurtherimprovementoftheprivatefundsregulatorysystem.

ThePrivateFundsRegulationsstrengthenthesupervisionoffundmanagers.UnderthePrivateFundsRegulations,thequalificationofafundmanagerwouldbecanceledbytheAMACifafundmanagerhasbeenfoundconductingillegalfundraisingforillegalbusinessoperations.Theregulationsalsostrengthenthepenaltiesforsen-iormanagementpersonneloffundmanagers.Employeesofafundmanager,fundcustodian,securitiesorfuturesexchange,securitiescom-pany,securitiesdepositoryandclearinginstitu-

tion,futurescompanyoranyotherinstitutionorfunctionaryofastatebody,whohavebeendischargedduetoanyviolationoflawsarenotallowedtoserveasseniormanagementperson-nelinafundmanagerafterthedischarge.

ThePrivateFundsRegulationsalsosetupaseriesofadministrativepenaltiesfortheillegalbehavioroffundmanagersandresponsiblepersonnel.Intheeventthataprivatefundman-agerfailstofulfilltheinvestigationobligationofqualifiedinvestors,failstocompleterecord-filingformalitiesforaprivately-offeredfund,engag-esinillegalrelated-partytransactionswithoutdisclosureinaccordancewithapplicablelawandregulations,theChinaSecuritiesRegula-toryCommission(CSRC)isentitledtoimposeawarning,notificationandcriticismaswellasfinesuponsuchfundmanagersand/ordirectlyresponsiblesupervisorsandpersonnel.UnderthePrivateFundsRegulations,thefineimposedbytheCSRCcouldbeuptofivetimestheillegalincome.Ifthereisnoillegalincomeoriftheille-galincomeislessthanRMB1million,themaxi-mumfinewouldbeRMB1million.

TheRegistration-basedIPOSystem,RevisedIssuanceConditionsandRegistration

ProceduresFurtherFacilitatedandExpandedInvestmentExitChannelsforInvestors

InNovember2018,theScienceandTechnologyInnovationBoardMarket(STAR)wasinitiatedintheShanghaiStockExchangeandpilotedtheregistration-basedIPOsystem.InAugust2020,theGrowthEnterpriseMarket(GEM)oftheShenzhenStockExchangepilotedtheregistra-tion-basedIPOsystem.InNovember2021,theBeijingStockExchangewassetupandimple-mentedtheregistration-basedIPOsystem.Theregistration-basedIPOsystemhasempoweredfinanceandthedevelopmentoftherealecono-

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my,especiallyfortechnology-basedandinnova-tiveenterprises.

InFebruary2023,theregistration-basedIPOsys-temforstockissuancewasformallyexpandedtothewholecapitalmarket.TheCSRCissuedtheAdministrativeMeasuresfortheRegistrationofInitialPublicOfferingsofStocksandotherrelat-edimplementationrules.Thestockexchanges,NationalEquitiesExchangeandQuotationsLim-itedLiabilityCompany,ChinaSecuritiesDeposi-toryandClearingLimitedLiabilityCompany,ChinaSecuritiesFinanceCorporationLimitedandtheChinaSecuritiesAssociationalsoissued

andimplementedrelatedrules,involvingatotalof165rules,whichmarksasignificantdevel-opmentoftheregulatorysystemforthecapitalmarketofmainlandChina.

Intermsofissuanceconditions,anewmarketvalueindicatorisintroducedaccordingtothelist-ingrulesoftheShenzhenStockExchangeandtheShanghaiStockExchange.Forapplicants,theyneedtocomplywithallofthefollowingcon-ditionsincluding,(a)theestimatedmarketvalueisnotlessthanRMB5billion,(b)thenetprofitforthemostrecentyearispositive,(c)thebusi-nessrevenueforthemostrecentyearisnotlessthanRMB600millionand(d)thecumulativenetcashflowgeneratedfromtheoperatingactivitiesforthemostrecentthreeyearsisnotlessthanRMB150million,or,alternatively,allofthefol-lowingconditionsmustbemet,(a)theestimatedmarketvalueisnotlessthanRMB8billion,(b)

thenetprofitforthemostrecentyearispositiveand(c)theoperatingincomeforthemostrecentyearisnotlessthanRMB800million.ComparedwiththepreviousAdministrativeMeasuresforInitialPublicOfferingsandListings(expired),thenewruleshaveremovedtherestrictivecondi-tionssuchastheabsenceofuncompensatedlossesattheendofthemostrecentperiodand

thelimitationontheratioofintangibleassetstonetassets.Therevisedissuanceconditionsprovidenewoptionsforapplicantsandaimtosupporttheissuanceandlistingofhigh-qualityenterpriseswithmaturebusinessmodels,sta-bleoperatingperformancesandlargebusinessscales.

Intermsofregistrationprocedures,accordingtotheAdministrativeMeasuresfortheRegistrationofInitialPublicOfferingsofStocks,thestockexchangewillreviewtheregistrationdocumentsandforwardtheapplicationtotheCSRCforreg-istration.TheIssueReviewandApprovalCom-mitteeofCSRCisformallycancelledafterthefullimplementationoftheregistration-basedIPOsystem.Uponreceiptofthestockexchange’sreviewcommentsandrelevantregistrationdocuments,theCSRCwillproceedregistrationproceduresandissuethedecisiononwhethertoregisterwithin20workingdays.Undertheregistration-basedIPOsystem,thetimeneededfromapplicationtolistinghasbeengreatlyshort-enedforapplicants.

Underthefullimplementationoftheregistration-basedIPOsystem,theissuanceconditionsandreviewprocedureshavebeenoptimised,whichfurtherfacilitatesthelistingforissuersandexpandstheexitchannelsforinvestors.

TrialAdministrativeMeasuresofOverseasSecuritiesOfferingandListingbyDomesticCompaniesReshapedtheRegulatory

FrameworkforOverseasListingofDomesticEnterprises

On17February2023,theCSRCissuedtheTrialAdministrativeMeasuresofOverseasSecuri-tiesOfferingandListingbyDomesticCompa-nies(the“TrialAdministrativeMeasures”),whichcameintoforceon1March12023.TheTrialAdministrativeMeasuressubstantiallychanged

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theregulatoryframeworkfortheoffshorelistingofdomesticcompanies.

Offshorelistingofdomesticenterprisesisanimportantwaytoexitforinvestors,especiallyforoffshoreinvestors.Traditionally,therearethreetypesofoffshorelistingstructuresfordomesticenterprises:H-sharestructure,grandred-chipstructureandsmallred-chipstructure.Thesmallred-chipstructurecouldbefurtherdividedintoequitycontrolstructureandvariableinterestentity(VIE)structure.H-sharestructure,whichcanbeunderstoodtobeacompanyincorpo-ratedinthePRCdirectlyapplyingforlistingandfundraisingatoffshorestockexchanges,requirestheapprovaloftheCSRC.Thegrandred-chipstructurecouldbeunderstoodtobeanoffshoreholdingentityorentitieswithdomesticassetsorinterestsasthelistingapplicantwhichisultimatelycontrolledbyaPRCincorporatedenterprise.BeforetheimplementationoftheTrialAdministrativeMeasures,theNoticeoftheStateCouncilonFurtherStrengtheningtheAdminis-trationofShareIssuesandListingsOverseasorthe“1997Red-ChipGuideline”(expired)wastheapplicableregulation.ThisregulationrequiredtheapprovaloftheCSRCandoftheprovincialgovernmentfortheoverseaslistingofgrandred-chipstructurecompanies.Forthesmallred-chipstructure,itcanbeunderstoodasadomesticnaturalpersonholdinginterestsinadomesticcompanythroughoffshorecompaniesand,assuch,around-tripinvestmentintoChina.Theoffshorecompany,usuallyaCaymancompany,isusedasthelistingcompanyforthefinancingpurposeunderthesmallred-chipstructure.Aftertheabolitionoftheno-objectionlettersystemasstipulatedintheCircularofChinaSecuritiesRegulatoryCommissiononIssuesConcerningStockIssuanceandPublicOfferingAbroadofOverseasCorporationswhichInvolveDomes-ticEquityin2003,thesmallred-chipstruc-

tureofoverseaslistingrequirednoapprovalorregistrationwiththeCSRC,whichworkedforalmost20years.AftertheimplementationoftheTrialAdministrativeMeasures,theregulationofabove-mentionedstructureshaschangedfun-damentally,asCSRCfilingsarerequiredunderallthreestructures.

Article2oftheTrialAdministrativeMeasuresexplicitlyprovidesthat“indirectoverseasissu-anceandlistingofdomesticenterprisesreferstotheissuanceandlistingofsecuritiesbyanenter-prisewithitsmainbusinessactivitiesintheterri-tory,underthenameoftheenterpriseregisteredabroad,overseasissuanceandlistingbasedontheequity,assets,incomeorothersimilarrightsandinterestsofdomesticenterprises.”WhileunderArticle15oftheTrialAdministrativeMeasures,ifatargetcompanyfulfillthecondi-tionsthattheoperatingrevenue,totalprofit,totalassetsornetassetsofthedomesticenterpriseinthelatestfiscalyearaccountformorethan50%oftheissuer’sauditedconsolidatedfinan-cialstatementsforthesameperiod,aswellasthatthemajorpartsoftheoperatingactivitiesarecarriedoutinthePRCterritoryorthemainprem-isesarelocatedinthePRCterritory,orthatthemajorityoftheseniormanagementinchargeoftheoperationandmanagementareChineseciti-zensortheplaceofhabitualresidenceislocatedinthePRCterritory,itwillberecognizedasanindirectoverseaslistingofadomesticenterpriseandsubjecttothefilingrequirementsundertheTrialAdministrativeMeasures.

BeforetheimplementationoftheTrialAdminis-trativeMeasuresnofilingorregistrationtotheCSRCwasrequiredforaproposedlistingofacompanywiththesmallred-chipstructureanditslistingcouldusuallybecompletedwithinsixtotwelvemonths.AftertheimplementationoftheTrialAdministrativeMeasures,itwilltake

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moretimeduetothefilingprocedures.Butfromanotherperspective,theTrialAdministrativeMeasuresprovidemoreflexibilityforcompa-nieswithanH-sharestructure.Underthecurrentregulatoryregime,proposedlistedcompanieswithanH-sharestructurenolongerneedtheapprovalofCSRCasinthepast.Theycouldalsoavoidcomplexandtax-costlycross-borderreorganisationsasinthecaseofsmallred-chipstructures.

TheimplementationoftheTrialAdministrativeMeasuresalsobringsuncertaintytocompa-nieswithVIEstructure,whichistraditionallyusedbycompaniesengagedinindustriesintheprohibitedorrestrictedcatalogueforforeigninvestment.ThereisstillsomeuncertaintyastowhetherthesecompanieswillbeabletopasstheNDRCfilinginpractice.IntheTrialAdmin-istrativeMeasuresandtherelatedrepliestothereporters’questions,theCSRCindicatedthatitwouldnotcompletelyrejectthefilingofVIEstructurecompaniesengagedinindustriesintheprohibitedcatalogueforforeigninvestment,butthatitwouldconsultwithothercentralgov-ernment-levelindustryregulatorsonthismatter.However,uptonow,asfarasitisknown,noVIEstructurecompaniesengagedinindustriesintheprohibitedcatalogueforforeigninvestmenthavecompletedthefilingwithCSRC.

ChinaPilotsGivingPrivateEquityand

VentureCapitalFundsaNewExitOption

AccordingtoanoticepublishedbytheCSRCon8July2022(the“Notice”),theCSRClaunchedanewpilotprogramthatenablesstock(in-kind)distributionsbyprivateequityfundsandventurecapitalfunds(collectively,“PEFunds”),addingamuch-neededalternativeexitoptionforthem.

Itwasreportedthat,inOctober2022,theSCRCconsentedinprincipletoShanghaiLinliInvest-

mentPartnership(LimitedPartnership)’spilotapplicationforin-kinddistributionbystock.Theapplicantshouldfulfillthecorrespondingproce-duresandinformationdisclosureobligationsinaccordancewiththerelevantlawsandregula-tionsandtherequirementsoftheCSRConthepilotprogramofin-kinddistributionbystockbyPEFundsanddistributestocktotheirinvestorsinatimelymanner.OtherpilotapplicationsbyqualifiedPEFundsforin-kinddistributionbystockwerealsoprocessedinanorderlymanner.

AccordingtotheNotice,anin-kinddistributionbystockbyPEFundstoinvestorsmeansanarrangementwherebythePEFund’smanagerandinvestors(includingshareholdersorlimit-edpartners,asapplicable)agreetodistributethestockoflistedcompaniesthataretradableonthesecondarymarketheldbyPEFundstoinvestors(share/interestholders)througha“non-transaction”ownershiptransfer.Thistypeofnon-cashpaymenttoinvestors,knownasadistribution-in-kind,iscommonlyemployedinoverseasmarkets,butisabrand-newapproachinChina.

ManyPEFundstraditionallyhaveafivetotenyearduration,butitusuallytakesquiteafewyearsfortheirearly-stageprojectstogopublic.Assuch,theyhaveastrongexitdemandandfacepressurefromtheirlimitedpartnerinves-tors.Apparently,asopposedtohetraditionalexitchannel(PEFundstypicallyliquidatetheirstockinaportfoliocompanyafteritistradableonastockexchangeanddistributethecashproceedstotheirinvestors),theCSRC’spilotprogramaimstocreateastraightforwardandmoreflexiblewayforinvestorstocashoutupontheirourjudgmentofthetimingandpricing.

Ontheotherhand,somerestrictiverequire-mentsapplytoapplicationsunderthepilot

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programaccordingtotheCSRC.Onlyalistedcompany’spre-IPOsharesheldbyPEFundscanbedistributed.PEFundsortheirinvestorswhoarethecontrollingshareholder,thelargestshareholderortheactualcontrollerofalistedcompanyarenoteligiblefortheprogram.andlastly,PEFundswhoholdalistedcompany’sstockthatissubjecttoalock-upperiod,com-mitmentorothersalerestrictionsarenotallowedtoparticipate.Moreover,thecurrententerpriseregistrationsystemandthesecuritiesregistra-tionandsettlementsystemlackcorrespondingsupportingmechanisms,resultingindifficultiesinimplementingsuchnon-cashdistribution.

Insum,theCSRC’spilotprogramtakesintoaccountthedifferentiatedneedsofinvestors,broadensPEFunds’exitchannels,promotesthelong-termsounddevelopmentofChina’sprivateequityandventurecapitalindustryandandbooststheroleofprivateequityandventurecapitalinsupportingthenation’srealeconomy,innovationandentrepreneurship.

China’sFirstRegulationGoverning

GenerativeAIServices

GenerativeAIisaground-breakingtechnologythatwillhaveaprofoundinfluenceonproductionefficiencyandfurtherreshapethewholeworld.Chinahasembracedtheopportunitiesandchal-lengesthatthisnewtechnologymaybringtothenation,andhenceispreparedtoreactinallrespectsincludingimprovingitsregulatoryefforts.

On10July2023,ChinapromulgatedtheInter-imMeasuresfortheManagementofGenera-tiveArtificialIntelligenceServices(the“InterimMeasures”),acabinet-levelregulationgoverningtheprovisionofgenerativeAIservices,inthenameoftheCyberspaceAdministrationofChina(CAC)andsixothercentralgovernmentregula-

tors.TheInterimMeasureshavetakeneffecton

15August2023andaimtoensurethenationalsecurityandsocialinterestaswellaspromotethedevelopmentandapplicationoftechnolo-giesinthisfastdevelopingarea.TheInterimMeasureshavefollowedprinciplesandrulesintheupper-levellegislativeframeworkincludingthePRC’sCyberSecurityLaw,DataSecurityLaw,PersonalInformationProtectionLawandtheLawontheProgressofScienceandTechnol-ogy(collectively,“Upper-levelLaws”).

TheapplicationscopeoftheInterimMeasuresislimitedintwodimensions.First,theInterimMeasuresonlyapplytoserviceprovidersofgen-erativeAIservicesandsuchservices.Second,suchgenerativeAIservicesareonlythosethatareavailabletothepublicintheterritoryofPRC.Ther