Lin­klaters sees China ODI till 2027 at $1.5t

China Daily (Canada) - - VIEWS - By CECILY LIU in Lon­don cecily.liu@mail. chi­nadai­lyuk.com

Chi­nese out­bound di­rect in­vest­ment or ODI in the com­ing decade is fore­cast to reach $1.5 tril­lion, up 70 per­cent from the level dur­ing 2007-16, ac­cord­ing to a new re­port by lead­ing Bri­tish law firm Lin­klaters.

The re­port iden­ti­fied key Chi­nese poli­cies, in­clud­ing Made in China 2025 and the Belt and Road Ini­tia­tive, as ma­jor driv­ing forces for con­tin­ued growth in Chi­nese out­bound deals, al­though it warned that Chi­nese ac­quir­ers should ap­proach deals strate­gi­cally in the face of reg­u­la­tory tight­en­ing over­seas.

Wil­liam Buck­ley, a part­ner at Lin­klaters, said: “De­spite in­creas­ing reg­u­la­tory scru­tiny of Chi­nese out­bound merg­ers and ac­qui­si­tions by for­eign gov­ern­ments, and calls for greater rec­i­proc­ity, there is a def­i­nite Chi­nese de­sire to pur­sue the right deals abroad.”

A num­ber of high-profile Chi­nese out­bound deals have been blocked by for­eign gov­ern­ments, in­clud­ing the with­drawal of the Ger­man gov­ern­ment’s ap­proval for the ac­qui­si­tion of Aix­tron by Fu­jian Grand Chip in Oc­to­ber 2016. The United States also blocked the ac­qui­si­tion of Aix­tron’s US sub­sidiary.

Ger­many and the US blocked the deals by ar­gu­ing that Chi­nese com­pa­nies had been buy­ing up over­seas en­ter­prises that have strate­gic tech­nolo­gies, with­out al­low­ing sim­i­lar pur­chases to be made by Chi­nese com­pa­nies.

Aix­tron makes de­vices that pro­duce crystalline lay­ers based on gal­lium ni­tride, which are used as semi-con­duc­tors in weapons sys­tems.

China’s For­eign Min­istry called the rea­son to block the deal “ground­less ac­cu­sa­tions” against Chi­nese com­pa­nies made by the US, and lamented the “politi­ciza­tion” of a com­mer­cial takeover.

Buck­ley said his team has wit­nessed new bar­ri­ers preventing for­eign ac­qui­si­tions in the United Kingdom, the US, Ger­many and within the rules of the Euro­pean Union. Sec­tors im­pacted in­clude en­ergy in­fra­struc­ture, high-end tech­nol­ogy and elec­tron­ics.

“Given these trends across sev­eral ma­jor economies, it is cru­cial that ac­quir­ers, tar­gets, and in­vestors have in place an in­formed strat­egy that ad­dresses this shift­ing pol­icy land­scape,” Buck­ley said.

There is a def­i­nite Chi­nese de­sire to pur­sue the right deals abroad.”

For ex­am­ple, the Bri­tish gov­ern­ment an­nounced last year it will re­view its for­eign in­vest­ment rules, to as­sess whether the sale of “crit­i­cal in­fra­struc­ture” should fall within the gov­ern­ment’s scope of re­view.

This an­nounce­ment was made when it was as­sess­ing France’s EDF and China Gen­eral Nu­clear’s in­vest­ment in the UK nu­clear power project at Hink­ley Point.

In re­sponse to this in­creased gov­ern­ment con­trol, Lin­klaters is sug­gest­ing to clients that they con­duct “early di­a­logue and en­gage­ment with reg­u­la­tory au­thor­i­ties, as well as gov­ern­ment agen­cies, par­tic­u­larly in sen­si­tive sec­tors”.

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