Core Viewpoint - State-owned capital has become a significant player in S transactions, rising from a 6.9% market share in 2020 to the second-largest seller by 2022, maintaining around 20% share in subsequent years [2][3]. Group 1: Cross-Border Transactions - Cross-border S funds are emerging as a new option for state-owned funds to revitalize existing assets, but they face unprecedented challenges [3]. - Each cross-border fund transaction requires separate applications for capital entry and exit, leading to long approval cycles and uncertainty [5][6]. - Recent policy changes from the State Administration of Foreign Exchange aim to simplify cross-border investment processes, potentially benefiting state-owned S funds [8][9]. Group 2: Taxation Issues - High tax burdens have led to the abandonment of several cross-border S fund transactions, with some facing effective tax rates exceeding 40% [11][12]. - The complexity of tax regulations across different jurisdictions adds to the challenges, with varying tax treatments for cross-border equity income [13][14]. - Recent initiatives to optimize the tax environment have been introduced, but specific guidance for cross-border S fund transactions remains insufficient [15]. Group 3: Information Barriers - Information asymmetry poses significant challenges in cross-border transactions, with foreign funds often reluctant to share detailed financial data [17][18]. - Legal compatibility issues between different jurisdictions complicate transactions, increasing costs and extending timelines [19][20]. Group 4: Solutions and Developments - Hainan Free Trade Port is attempting to enhance cross-border capital flow through the introduction of Free Trade Accounts [22][23]. - Various regions are exploring solutions to facilitate cross-border S fund transactions, including the Shanghai QFLP pilot and the establishment of dedicated cross-border transaction channels [24]. - Despite challenges, the market shows optimism, with a 150% increase in cross-border S fund transaction volume in 2024 compared to 2023 [24].

Core Viewpoint - The cross-border transactions of S funds are gaining momentum, with state-owned assets becoming significant participants, but face unprecedented challenges due to regulatory and tax issues [3][10][29]. Group 1: Cross-Border Transactions - The first major cross-border S fund transaction led by foreign capital occurred in February 2025, involving a 229 million yuan deal [3]. - State-owned assets have increased their participation in S fund transactions, rising from 6.9% in 2020 to approximately 20% in 2022, 2023, and 2024 [3]. - Over 1 trillion yuan in assets are awaiting exit in the next 2 to 3 years, with nearly 200 billion yuan facing exit pressure in 2024, 30% of which involves cross-border transactions [3]. Group 2: Regulatory Challenges - Cross-border S fund transactions face significant hurdles, including foreign exchange approvals, tax burdens, legal compatibility, and information barriers [4][5][10]. - Each cross-border fund transaction requires individual foreign exchange applications, leading to long approval cycles and uncertainty [7][8]. - Recent policy changes from the State Administration of Foreign Exchange aim to simplify cross-border investment processes, benefiting state-owned S funds indirectly [10][11]. Group 3: Taxation Issues - Cross-border S fund transactions encounter double taxation, with domestic and foreign taxes exceeding 40%, leading to transaction failures [12][13]. - The complexity of tax regulations across different jurisdictions increases transaction costs and legal risks, discouraging potential deals [16][17]. - Recent initiatives to optimize the tax environment have been introduced, but specific guidance for cross-border S fund transactions remains insufficient [19]. Group 4: Legal and Information Barriers - Legal compatibility issues are a major constraint, with cross-border transactions requiring extensive legal due diligence, often 3 to 5 times more costly than domestic transactions [22][24]. - Information asymmetry poses challenges, as foreign entities may only provide limited financial data, complicating valuation and negotiations [20][21]. - Different legal systems create complexities in fund share ownership recognition, increasing transaction costs and duration [22][23]. Group 5: Market Outlook and Innovations - The Hainan Free Trade Port is attempting to enhance cross-border transaction facilitation, with significant capital flows already recorded [25][26]. - Shanghai's QFLP pilot program allows foreign investors to convert capital for S fund transactions, marking progress in cross-border engagement [27]. - Despite challenges, the market shows promise, with a 150% increase in cross-border S fund transaction volume in 2024 compared to 2023 [28].