Belt and Road shields Myan­mar from Bei­jing’s cap­i­tal crack­down

The Myanmar Times - - Business - THOMP­SON CHAU t.chau@mm­

BEI­JING’S re­cent crack­down on out­bound in­vest­ments does not af­fect Myan­mar be­cause of its in­volve­ment in the Belt and Road Ini­tia­tive (BRI). The sec­tors tar­geted by the re­stric­tion do not con­cern in­vest­ment projects here, which are mostly in­fras­truc­ture and en­ergy-re­lated. PwC Myan­mar

The Chi­nese gov­ern­ment is black­list­ing busi­nesses which vi­o­late for­eign in­vest­ment rules as part of a broader crack­down on “ir­ra­tional and unau­then­tic” over­seas ac­qui­si­tions, China’s state-run China Daily on Septem­ber 14 stated.

In re­cent months, the Chi­nese gov­ern­ment has stroke against highly ac­quis­i­tive pri­vate en­ter­prises and has crit­i­cised some of the most renowned com­pa­nies which ac­quired mas­sive for­eign as­sets.

The Fi­nan­cial Times ar­gued on Au­gust 9 that the crack­down on over­seas in­vest­ments has re­sulted in un­cer­tainty in pri­vate sec­tors as to what M&A ac­tiv­i­ties are per­mit­ted.

Chi­nese M&A lead­ers – con­glom­er­ate HNA Group, real es­tate and en­ter­tain­ment gi­ant Dalian Wanda, in­surance leader An­bang and con­sumer con­glom­er­ate Fo­sun – have been tar­geted by “well-placed leaks and state me­dia in­nu­endo”, ac­cord­ing to the FT. An­bang’s chair Wu Xiao­hui has been detained by the au­thor­ity since June.

Data from Dealogic sug­gested that HNA Group, Dalian Wanda and An­bang were among the top six over­seas buy­ers. The three giants, to­gether with Fo­sun, ac­counted for al­most a fifth of China’s over­seas pur­chases in 2016.

The Myan­mar Times has not found di­rect in­volve­ment of the four com­pa­nies in any large-scale in­vest­ments in Myan­mar.

No im­pact on Myan­mar Ex­perts told The Myan­mar Times that Bei­jing’s crack­down on ac­quis­i­tive con­glom­er­ates to re­strict cap­i­tal out­flows does not tar­get Belt and Road projects and is not ex­pected to af­fect in­vest­ments in Myan­mar. In con­trast, M&A ac­tiv­i­ties linked to Pres­i­dent Xi Jin­ping’s sig­na­ture for­eign pol­icy are surg­ing.

Jovi Seet, se­nior ex­ec­u­tive di­rec­tor of merg­ers and ac­qui­si­tions at PwC Myan­mar, said that China’s in­ter­est in the coun­try has not damp­ened.

“Chi­nese author­i­ties have for­mally laid down new rules on over­seas in­vest­ments, mak­ing explicit its re­stric­tion on ‘ir­ra­tional’ ac­qui­si­tion of as­sets in cer­tain sec­tors. China’s cap­i­tal con­trol on out­bound in­vest­ments is pri­mar­ily tar­geted at sec­tors such as

‘...cap­i­tal re­stric­tion can turn out to be a pos­i­tive thing for Myan­mar, as it po­ten­tially di­rects more at­ten­tion and fi­nan­cial dis­ci­pline into the much-needed in­fras­truc­ture sec­tors...’

Jovi Seet

real es­tate, en­ter­tain­ment and sports,” Mr Seet noted.

The BRI fo­cuses on strate­gic in­fras­truc­ture projects to bridge the in­fras­truc­ture gaps and stim­u­late eco­nomic growth in coun­tries in­volved in the scheme, ac­cord­ing to the PwC di­rec­tor.

“We are be­gin­ning to see a grad­ual in­crease in China out­bound ac­tiv­i­ties in re­cent months. It has been re­ported that the value of Chi­nese over­seas M&A deals jumped in the third quar­ter after sev­eral large trans­ac­tions many of the deals tied to the BRI.

“I am hop­ing that the cap­i­tal re­stric­tion can turn out to be a pos­i­tive thing for Myan­mar, as it po­ten­tially di­rects more at­ten­tion and fi­nan­cial dis­ci­pline into the much-needed in­fras­truc­ture sec­tors in Myan­mar,” he added.

Hi­lary Lau, a cor­po­rate and com­mer­cial lawyer and part­ner at the law firm Herbert Smith Free­hills echoed a sim­i­lar view: the re­stric­tions on over­seas in­vest­ments are meant to limit only cer­tain in­dus­tries such as hos­pi­tal­ity and en­ter­tain­ment.

“En­ergy and in­fras­truc­ture trans­ac­tion are still en­cour­aged by the Chi­nese gov­ern­ment. Belt and Road projects are also en­cour­aged by the gov­ern­ment and are pol­icy-driven. Hence, I don’t think the crack­down will have much im­pact on Belt and Road trans­ac­tions or projects,” Mr Lau ex­plained. Re­sorts, hos­pi­tal­ity and en­ter­tain­ment sec­tors may “slow a bit” but other ar­eas which are en­cour­aged will con­tinue to go ahead.

“The Belt and Road coun­tries should con­tinue to be hot ar­eas for in­vest­ment be­cause Chi­nese gov­ern­ment is clearly push­ing for­ward BRI in­vest­ments,” the lawyer added. Some coun­tries will be more af­fected than oth­ers, de­pend­ing on the sec­tors in which Chi­nese in­vest­ments have been tar­geted. For those af­fected, PwC ob­served that M&A trans­ac­tions have al­ready slowed and Chi­nese in­vestors have be­come “more cau­tious and less bullish”. In­vestors are now look­ing to China’s 19th Party Congress this month for the gov­ern­ment’s pol­icy re­gard­ing out­bound in­vest­ment.

Thom­son Reuters data re­vealed that Chi­nese ac­qui­si­tions in the 68 coun­tries of­fi­cially linked to the BRI to­talled US$33 bil­lion as of Au­gust 14, sur­pass­ing the $31 bil­lion tally for all of 2016. Asia saw the big­gest in­crease in deals out of all the re­gions, with an over­all num­ber of M&A the sec­ond high­est, after Europe.

Photo: PwC China and Thom­son Reuters

Out­bound M&A deal vol­ume by re­gion of des­ti­na­tion 1H17 vs 2H16. Asia saw the big­gest in­crease in deals, partly in­flu­enced by Belt & Road re­lated in­vest­ments.

Photo: EPA

State Coun­sel­lor Daw Aung San Suu Kyi (cen­tre) and Chi­nese Premier Li Ke­qiang (left) walk past Peo­ple’s Lib­er­a­tion Army hon­our guards in the Chi­nese cap­i­tal in Au­gust 2016.

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