China’s outbound investment could reach $2.5 trillion over next ten years

  • New report from the international law firm, Linklaters, projects $1.5-2.5 trillion of outbound investment from China in order to meet global strategy
  • Increase to occur despite mounting regulatory concerns
  • Widening regulatory and political concerns now encompass industries with a significant data or cybersecurity component
  • Understanding trends will help Chinese businesses and policymakers achieve success in their outbound investments

Linklaters, the international law firm, highlights today in a new report that China’s outbound investment is projected to reach $1.5-$2.5 trillion over the next ten years, despite a backdrop of increasing regulatory and political concerns about foreign investment into sensitive sectors.

The significant levels of announced and projected outbound investment come despite several high profile deals being blocked or delayed on the basis of regulatory and political concerns in 2017 - in particular those involving defence and critical infrastructure. These concerns continue but increasingly involve deals falling outside of these areas, most notably with businesses having a significant data or cybersecurity-related aspect to their activities.

The Linklaters report, ‘The road to success: completing outbound investment in an increasingly regulated world’ identifies that approximately $170bn of Chinese outbound investment was announced in 2017. Whilst this is below the $230bn announced in 2016, it is still the second highest figure on record.

William Liu, National Managing Partner for Linklaters in China, commented:

“The increasing regulatory scrutiny of foreign investment is a trend of continuing importance and must be navigated in order for Chinese businesses and policymakers to meet their goals. In the last year we have seen an increasing focus on data and cybersecurity, as well as continuing concerns by foreign businesses, regulators and governments about transparency and reciprocity.”

The report has been prepared by Linklaters for the China Development Forum in Beijing, China’s foremost platform for dialogue between its senior leadership and representatives from global business., The report highlights several key trends that are helpful as guidelines for the future success of those seeking to complete Chinese outbound M&A deals:

  • Foreign governments and regulators expressing concerns about investments into an ever-widening set of activities – recently this has increasingly focused on businesses with significant data or cybersecurity aspects to their operations
  • The need to work with the right partners and use the right deal structures, but also being aware of the timing of any particular approach as political and legislative agendas change
  • The usefulness of increasing transparency in relation to Chinese regulatory and business processes in order to help foreign sellers, regulators and governments to gain comfort in relation to Chinese outbound investment.

The report offers lessons and commentary relating to regulatory concerns around recent withdrawn or delayed M&A transactions, an understanding of which can be critical to both Chinese bidders and non-Chinese targets, as well as Chinese policymakers responsible for supporting outbound investment.

Recent transactions discussed in the report include the cancellations of the acquisitions of Lattice Semiconductor Corp, US insurer Fidelity & Guaranty Life, aluminium company Aleris, and payments company MoneyGram International.