13 February 2018
Chinese outbound investment
Towards the end of 2017, Chinese regulators began to loosen the curbs on 'irrational outbound investment deals', paving the way for increased investments overseas from domestic companies. In this Q&A with Asian Legal Business, Carey Olsen's Anthony McKenzie looks at what this means for offshore law work.
1. What are the reasons behind the loosening of the curbs on these outbound investment deals?
In August 2017, PRC announced the restrictions on overseas investment by PRC companies in traditionally risky fields such as real estate and sports clubs, but also in other areas such as new energy, technology, resources and agriculture. The rationale for the restrictions was to reduce the risk the investments - which likely had a strong reliance on bank lending – had on the entire banking system within PRC. With the stabilisation of the RMB, such restrictions are now seen as less important than they were five months ago.
It is clear through the Belt and Road Initiative (which PRC companies were encouraged to support at the time the restrictions were announced in August 2017) that the PRC government would like to expand the nation's influence externally through the investments of a few main PRC companies in each industry. By relaxing the restrictions, such expansion would be encouraged, especially as the curbs were initially introduced to ensure that investment was aligned with PRC's national interest.
Additionally, the PRC government views the loosening of the curbs as necessary to the 'internationalisation' of the RMB. The authority would like to transit the way of internationalisation from cross-border trade to capital export.
2. What’s the outlook for Chinese outbound investment in 2018? Are there any sectors/ industries that are likely to stand out?
The Measures for the Administration of Overseas Investment of Enterprises will take effect in March 2018. The measures are intended to make the registration/approval procedure more convenient and straightforward in order to promote growth in outbound investment, especially to those PRC companies that have a clear strategy for overseas expansion and whose focus is on the development of their main businesses.
External investment in infrastructure and new technology (i.e. TMT – Technology, Media, Telecom) is encouraged by the PRC government, especially those that relate to the Belt and Road Initiative.
3. How can offshore law firms grasp this opportunity? What are the key factors to consider when providing offshore legal services for Chinese companies wanting to invest/expand overseas at this time?
Offshore entities are likely to have a significant role to play as the Belt and Road Initiative develops. Offshore entities have a long established use in Asian cross-border transactions, especially in jurisdictions where it is difficult to find experienced local legal advisors, or where financing is sought from international third party investors. Given that there may be a significant funding gap between the cost of each project and the amount on offer from PRC banks, it is likely that opportunities for foreign investment would be created. Offshore entities are often seen as providing the necessary impartiality and stability to be the medium for such investment.
At the same time, it is important offshore law firms are aware of the needs of their PRC clients and understand the business culture. Having the ability for team members to visit the clients in person, and who are able to converse in Mandarin is an increasingly important differentiator between offshore firms.
In response to client demand, Carey Olsen has opened two Asian offices (Singapore and Hong Kong) in the past three years. Our clients in China now have direct access to our specialist lawyers who are in the same time zone as them and in the context of their own commercial environment.
This Q&A was part of a larger feature on Chinese outbound investment published by Asian Legal Business, February 2018.
© Carey Olsen 2018.