The General Office of the Shanghai Municipal Government of the People's Republic of China has recently issued "Several Measures to Further Promote the High-Quality Development of the Equity Investment Industry in Shanghai," hereinafter referred to as "Several Measures.” The Several Measures will be effective from February 1, 2024, and will remain valid until January 31, 2029. The Several Measures encompass 32 initiatives across 9 key areas: streamlining the establishment services and industry oversight of equity investment institutions; encouraging early and small-scale investments in technology; backing the growth of enterprise venture capital; fostering long-term, patient capital; facilitating smooth exits for equity investments; implementing favorable financial and tax policies; driving industry collaboration for innovative progress; establishing top-tier equity investment hubs; and fortifying the development of industry social organizations. Specific interpretations of the details are shown in the following:

I. Main Background of the Formulation of Several Measures

Equity investment serves as a critical driver in fostering innovative capital formation, expanding the share of direct financing, and bolstering scientific and technological innovation. The CPC Central Committee and the State Council accord significant priority to the advancement of the equity investment sector. The Central Economic Work Conference held in December 2023 emphasized the encouragement of venture capital and equity investment development. The Central Financial Work Conference held in October of the same year also underscored the importance of developing diversified equity financing, nurturing top-tier investment institutions, and boosting the competitiveness and influence of Shanghai as an international financial hub. In July of the same year, the State Council issued the Regulation on the Supervision and Administration of Private Investment Funds, marking a significant milestone in the standardization and sustainable growth of the equity investment industry. In June of the same year, during the executive meeting of the State Council, the Action Program for Strengthening Support for Financing of Science and Technology-based Enterprises was deliberated and approved. It was highlighted that supporting start-up science and technology-based enterprises should be of paramount importance, and there should be accelerated efforts in establishing a financial service support system centered around equity investment and interconnected "equity, loan, debt, and insurance".

The formulation and issuance of policy documents to advance the high-quality development of the equity investment industry, alongside ongoing refinement and optimization of the entire process and services encompassing "raising, investment, management, and exit", aim to attract additional investment institutions to establish roots in Shanghai and foster sustained growth. This effort constitutes a crucial aspect of implementing the directives of the central government and the national deployment strategy, fostering the integrated development of Shanghai as both an international financial center and a hub for scientific and technological innovation.

II. Main Considerations for the Formulation of Several Measures

In alignment with the essence of the significant guidance provided by General Secretary Xi Jinping during his visit to Shanghai, with a further emphasis on the pivotal task of constructing the "five centers" and expediting the development of a modern socialist international metropolis, the formulation of the document takes into account the following four primary considerations:

Implementation of national and municipal deployment requirements

The Several Measures thoroughly implement the institutional framework outlined in the Regulation on the Supervision and Administration of Private Investment Funds, encompassing market access, business development requirements, registration and filing procedures, fundraising processes, investment operations, supervision, and management. This emphasizes the facilitation of the industry's healthy growth and underscores its role in supporting functions such as scientific and technological innovation, among other objectives. Simultaneously, in alignment with the State Council's Action Program for Strengthening Support for Financing of Science and Technology-based Enterprises and the directives of the Municipal Party Committee and the Municipal Government, we have actively fostered long-term and patient capital, guided investments in science and technology, and advanced the interconnected development of the Shanghai International Financial Center and the Science and Technology Innovation Center.

Targeting the pain points and challenges encountered in industry development

Drawing from research and visits conducted with equity investment institutions, regulatory bodies, and industry associations, coupled with intensive policy research and analysis, the Several Measures concentrate on addressing the challenges related to institutional establishment, fundraising, investment exits, and information exchange highlighted by various stakeholders. Additionally, they tackle areas of significant market interest such as government-guided funds, enterprise venture capital, mobilization of long-term funds, and optimization of financial and tax policies. The proposed measures are finely tailored to address these concerns with precision.

More closely tailored to the operational dynamics of equity investment businesses

The Several Measures prioritize a deeper comprehension of the operational principles and distinctive traits of the equity investment sector. They aim to address the intricate interplay between the market and government, while also understanding the diverse roles and positions within each stage of the process. During the stages of establishment, fundraising, and exit, endeavors will be directed towards maximizing the supportive and guiding function of the government, taking proactive steps to bolster support and assistance. In the phases of investment and management, the focus will be on unleashing the primary role and professional expertise of equity investment institutions. Concurrently, relevant departments will undertake comprehensive coordination and support to ensure the creation of an environment conducive to positive interaction between the market and government, thereby jointly fostering development.

Highlighting the implementation

The Several Measures underscore the feasibility and practicality of the policies, articulating clear timelines, channels, and allocated amounts for certain measures. The focus lies on enhancing policy guidance and the regulatory environment, with a proposal for the high-quality development of several equity investment clusters, accompanied by the introduction of robust incentive policies to bolster relevant initiatives.

III. Main content of Several Measures

The Several Measures are categorized into nine sections, comprising a total of thirty-two articles.

Part I

Enhancing the establishment services and industry management of equity investment institutions, totaling 5 articles

Facilitate the coordinated development and standardization of the industry, encourage the concentration of equity investment factors, and promote the establishment or relocation of equity investment institutions to designated equity investment cluster areas through designated channels, time-limited processing, and parallel urban areas. Additionally, establish an expedited mechanism for high-quality fund managers to establish new equity investment funds, thereby accelerating processing efficiency. Enhance management within the equity investment industry by implementing an information-sharing mechanism. This will bolster early risk notification and streamline coordination for risk mitigation measures. Furthermore, promote a culture within the industry that encourages excellence while simultaneously eliminating subpar practices.

Part II

Encourage early-stage and small-scale investments in science and technology, totaling 3 articles

By enhancing the influence of government guidance funds, establishing professional service platforms for angel investment, and incentivizing social capital to augment investments, among other policy initiatives at various tiers, the aim is to establish a beacon for early-stage, small-scale, and science and technology investments.

Part III

Promote the growth of enterprise venture capital, totaling 2 articles

Provide support for key enterprises along the industrial chain to engage in Corporate Venture Capital (CVC), with CVC institutions established by them eligible for special support policies compared to conventional equity investment institutions. Attract Corporate Venture Capital (CVC) funds to establish a presence in Shanghai, offer support for their capital-raising endeavors and business expansion. Additionally, foster collaboration and integration between different types of industrial parks within the city and CVC funds to amplify the effects of industrial chain agglomeration.

Part IV

Cultivate long-term capital and patient capital, totaling 4 articles

Efforts will be directed towards providing excellent investment services for national funds in Shanghai. This involves bolstering the landing services for the National Social Security Fund's Yangtze River Delta Science and Technology Innovation Special Fund, while concurrently facilitating the introduction of other national flagship funds and central enterprise funds. These measures aim to stimulate increased investment presence and activity within Shanghai. Encourage insurance funds and bank wealth management funds to boost their investments in key industries and advanced scientific and technological fields within the city. Encourage the investment of long-term funds such as corporate annuities and pensions into equity investment funds, adhering to commercialization principles.

Part V

Facilitate seamless exit routes for equity investments, totaling 5 articles

Expand avenues for exiting equity investments by improving the efficiency of mergers and acquisitions and reorganizations, streamlining channels for domestic and overseas listings of invested enterprises, enhancing the capabilities of fund share transfer platforms, fostering the growth of S-funds, and initiating pilot projects for distributing shares in kind.

Part VI

Implementing fiscal and tax incentives, totaling 3 articles

Efforts will be made to effectively coordinate and implement existing tax preferential policies within the venture capital industry. This involves establishing and enhancing an information-sharing mechanism among regulatory bodies such as the securities supervision, development and reform, and taxation departments. This aims to ensure accurate dissemination and utilization of tax benefits within the industry. Promote equity investment clusters to award step performance incentives to acknowledged VC enterprises or individual partners, thereby encouraging long-term investment strategies.

Part VII

Facilitating industry-linked innovative development, totaling 4 articles

Drawing on systemic innovations such as the Shanghai Science and Innovation Financial Reform Pilot Zone, alongside leveraging the synergies between Shanghai's international financial center and its science and innovation center construction, we will advance industry linkage and innovation across various fronts. This includes supporting the listing of equity investment fund managers, enabling equity investment institutions to issue debt, fostering innovation in investment and loan linkages, and deepening the QFLP pilot program.

Part VIII

High-quality Construction of Equity Investment Clusters, totaling 4 articles

Equity investment cluster areas establish district-level guidance funds of no less than 10 billion yuan, develop functional platforms like comprehensive service centers, and enhance comprehensive services for equity investment. Provide support for equity investment fund managers to enhance their professional capabilities. Enhance attraction services for key institutions and professionals. Improve coordination in industry development and provide collaborative support and service provision to tackle common challenges encountered by the sector.

Part IX

Strengthen the construction of industry social organizations, totaling 2 articles

Leverage the capabilities of industry social organizations, bolster the establishment of professional committees, support them in conducting specialized research in key industry areas, and organize high-level dialogues, branded forums, as well as thematic seminars and salons in Shanghai within the realm of equity investment.