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Time:March 23-25, 2019
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Sponsor:Development Research Center of the State Council
Organiser:China Development Research Foundation
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2018丨【Linklaters】The Road to Success Completing Outbound Investment in an Increasingly Regulated World

SECTION 1: EXECUTIVE SUMMARY


· While the pace of outbound investment from China has declined in 2017, Chinese outbound investment will continue to be a significant global force over the long term. We estimate, from a combination of sources, that Chinese outbound investment flows may come to $1.5 to $2.5 trillion over the next 10 years.


·Concerns about foreign investment remain very high on the political and regulatory agenda, with several high-profile deals being blocked in 2017 and 2018 (especially in the USA), as well as proposals and moves to tighten foreign investment screening regimes in the US, EU and UK.


·We are revisiting this topic after having looked at it 12 months ago for 2017’s China Development Forum. This is because of the significant changes that have taken place and that are being contemplated in this area, as well as the vital importance of outbound investment to long-term goals for China’s government and businesses. Linklaters has drawn on the insights of our international network to once again identify the global trends and developments in this area, and offer new recommendations to Chinese businesses and policymakers for completing outbound investment in this increasingly regulated world.


·Some of the key lessons that we have drawn from our experience include:


TIGHTENING OF CONTROLS IN A WIDENING SET OF SECTORS


Chinese investors need to be prepared for concerns from foreign governments and regulators in an ever-widening set of sectors. Last year, we described the spread of regulatory and governmental concerns into areas of “critical infrastructure”. We are now seeing additional concern in relation to investments into businesses with a significant data or cybersecurity aspect to their operations.


TIMING IS VITAL


oWorking with the right partners and the right deal structures is very useful – but getting the timing right is vital. New legislation being contemplated in the US and Europe may make previous approaches to investment (e.g. using acquisition vehicles, or developing partnerships to license sensitive technology rather than acquire the owners of such technology) more difficult.


TRANSPARENCY IS INCREASINGLY IMPORTANT


Greater transparency to help foreign sellers, regulators and governments to better understand Chinese regulatory and business processes would be very helpful. Whether or not a bid relates to a “sensitive” sector, bids from Chinese investors would be perceived as more attractive if factors such as the source and certainty of funding, and the consents required for a bid to be completed, were clearer – particularly when these bids are being offered in auction processes against bidders that can offer greater clarity on these issues.


·With these lessons in mind, we recognise that Chinese policymakers have an important role to play in supporting a positive environment for Chinese outbound investment. The recent efforts to support strategic outbound investment (for example, through the reform of outbound investment regulations due to start from 1 March 2018) are to be recognised and commended.


oWe suggest that further work on improving transparency and reciprocity in a sustainable manner, and improving global public perception of approaches from Chinese acquirers and investors, would be helpful.


oIn addition, maintaining and developing networking and education programmes to help Chinese and non-Chinese business, regulators and governments to better understand each other’s expectations and approaches to both attracting and providing investment would also be extremely useful.


· While this report focuses on the increasingly regulated world of investment in major western economies such as the US, UK and EU, it should be recognised that China’s outbound investment is also directed at the countries that are part of the Belt & Road Initiative. Showcasing the benefits (in terms of economic outcomes, quality of life, and positive international relations) of Belt & Road investment on these economies (which cover nearly two-thirds of the world’s population) will also improve international recognition of the benefits of outbound investment from China.


This report is structured as follows:


·Section 1 is the Executive Summary: it presents the main findings and suggestions of the report.·         


Section 2 describes the major developments in respect of political and regulatory barriers to foreign investment that have taken place in several key economies since the start of 2017.·        


Section 3 is a set of key lessons and suggestions arising from these major developments.·         


Section 4 is an appendix giving further detail on the legal environments of several key economies (the EU, France, Germany, the UK and the US).