US$1.5 trillion of inbound investment into China projected over next ten years as new Chinese Foreign Investment Law kicks in - Linklaters research
- Linklaters analysis projects US$1.5 trillion of inbound investment into China over next ten years catalysed by new Foreign Investment Law
- Newly signed Foreign Investment Law in China dramatically increases scope for foreign investors’ Chinese M&A and investment strategies
Research by Linklaters, the global law firm, projects that inbound investment via mergers and acquisitions into China is projected to reach US$1.5 trillion over the next ten years, more than triple the level of the previous ten years, as new laws including the updated Negative List and Foreign Investment Law liberalise investment into key sectors such as financial services and automotive industries.
The level of inbound M&A, which stood at a record US$56 billion in 2018, is projected to grow still further as the new Foreign Investment Law, signed on 15 March 2019, kicks in on 1 January 2020. The new foreign investment law will replace the three older statues that govern foreign invested entities and serve as the “unified law” for foreign investments in China. The law promises among other things equal treatment and intellectual property protection for foreign invested entities.
William Liu, Managing Partner for Linklaters in China, commented:
“The increasing liberalisation of foreign investment into China will be a key component for the development of the Chinese economy to move up the value chain, to meet the needs of its growing middle class, and to boost exports. 2018’s shortened Negative List sent a strong message to international market participants catalysing investment into key sectors such as automotive and financial services. The newly signed Foreign Investment Law will only help to accelerate this process as international investors and companies develop their Chinese deal-making experience.”
Eric Liu, Managing Partner for Zhao Sheng, Linklaters’ joint operation partner in China, said:
“The proposed changes will definitely be welcomed by foreign market participants and lead the next upsurge in foreign investment. Although the foreign investment management mechanism has evolved rapidly in recent years, there are still many changes to go both in legislation and in practice.”
The research was produced in connection with an upcoming Linklaters report that highlights several key trends that should be viewed as guidelines for success by international companies, investors and brokers seeking to complete Chinese inbound M&A deals:
- There is scope for foreign investors to take a very wide variety of merger, acquisition and investment approaches due to factors such as the increasingly wide range of participants and potential partners (from incumbents to start-ups) in sectors such as automotive and financial services, as well as the potential for capital market participation through international schemes such as Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and the impending Shanghai-London Connect.
- The importance of transparency in order to complete deals: transparency of regulation, of stakeholder structure, of information provided during due diligence, of organisational structure, of intent by both sides, and so on. Professional advisers (such as lawyers and accountants) and representative bodies could add significant value in helping to drive an appropriate level of transparency between market participants. Programmes of executive education for senior managers in Chinese and global companies will also help to bridge gaps and drive market practice.
- The importance of understanding how the wider global situation may impact the completion of a deal: factors such as the US-China trade talks, and Western governments’ continuing moves to increase regulatory screening of foreign investments into sensitive sectors may in turn impact the completion of both inbound and outbound deals.
The report was written in connection with Linklaters' attendance at the China Development Forum (CDF) Beijing later on in March, China’s foremost platform for dialogue between its senior leadership and representatives from global businesses and will be published shortly thereafter.