Tue, Aug 18, 2020 page12

• Chinese investments face new rules

  UPDATING DEFINITIONS: A draft amendment aims to close loopholes and change how a Taiwanese firm is deemed to be under the control of a Chinese company

  • By Angelica Oung / Staff reporter
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  Chinese investments in Taiwan are to be more strictly regulated under a draft amendment to the Measures Governing Investment Permits to the People of the Mainland Area (大陸地區人民來台投資許可辦法), the Ministry of Economic Affairs said yesterday.

  The amendment would change articles 3, 4 and 6 to expand the definition of Chinese capital and close loopholes that could be used by investors to skirt regulations on Chinese capital, the Investment Commission said.

  “The US, Japan and Germany are all tightening foreign investment requirements for China,” commission spokesman Su Chi-yen (蘇琪彥) told a news conference in Taipei. “In Taiwan we have separate laws governing foreign investment from China and the rest of the world, so we are only tightening the laws regarding Chinese investment.”

  

  The Ministry of Economic Affairs building is pictured in Taipei in an undated photograph.

  Photo: Huang Pei-chun, Taipei Times

  Su said that the regulatory changes are to determine whether Chinese investors have material control of a company.

  Under Article 3, any company with more than 30 percent Chinese ownership is considered a Chinese company, but if a 40 percent Chinese-owned firm acquired a 40 percent stake in a second entity, the second company would be considered a non-Chinese company with 16 percent Chinese ownership, Su said.

  “Under the new rules, the second company would still be considered a Chinese company because it is 40 percent owned by a Chinese firm,” she said.

  Another change to Article 3 would define so-called “material control” of a company by Chinese capital, the commission said.

  A company is considered to be under the control of Chinese capital if more than half of its board of directors are Chinese nationals. The draft amendment would extend this designation to any company that is under the executive control of a Chinese organization, the commission said.

  “It would be easy to determine which group is actually making the real decisions by looking at company documents. Maybe it is an executive committee technically under the board, but if they are the real decisionmakers, they need to be subject to the new rules and cannot be considered a non-Chinese company,” Su said.

  Article 4 governs the definition of investment, and the new regulations would consider a Taiwanese company a subsidiary of a Chinese firm based on investment from Chinese capital, even in the absence of a stock deal, Su said, adding that any purchase of assets would be considered a form of investment in that company.

  “Under the new rules, a Chinese company would no longer be able to purchase a whole [research and development] department of a Taiwanese company and claim it is not an investment because no stock changed hands,” Su said.

  Article 6, which forbids Chinese military-owned companies from investing in Taiwan, would be expanded to include Chinese Communist Party-owned companies, the commission said.

  The commission on Thursday is to post the draft amendment for public review and to receive feedback for 60 days before holding a cross-departmental meeting to finalize the changes.

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