On August 18, 2017, China鈥檚 clarifying rules passed a year ago by the State Administration of Foreign Exchange (SAFE) limiting outbound investments as cover-up to .
The new guidelines provide different policies for Chinese companies鈥 investment overseas, broadly dividing overseas investment into three categories:
- investments in 鈥渞eal estate, hotels, entertainment, sport clubs, [and] outdated industries鈥 are restricted;
- investments in sectors that could 鈥渏eopardize China鈥檚 national interest and security, including output of unauthorized core military technology and products鈥 and investments in gambling and pornography are prohibited; and
- investments in establishing R&D centers abroad and in sectors like high-tech and advanced manufacturing enterprises that could boost China鈥檚 Belt and Road Initiative, and investments that would benefit Chinese products and technology will be encouraged by Chinese outbound regulators.
These guidelines are new and we have to wait and see how they will be interpreted and implemented by regulators. Still, there may be reasons to believe they will have a net positive effect on the China-U.S. M&A market. The new guidelines bring about greater certainty to buyers, lenders and targets on whether a deal will get approved by Chinese regulators.
The volume and size of Chinese outbound M&A is already on an in the second quarter of 2017, as buyers are already getting more acclimated to SAFE rules announced at the end of 2016 restricting the outflow of Chinese capital. Chinese buyers completed 94 deals totaling $36 billion in Q2, compared to the 74 deals totaling $12 billion in Q1. The current Chinese outbound M&A trend, coupled with greater certainty under the new guidelines, is likely to result in more Chinese outbound M&A deals during the last quarter of 2017, as well as in 2018.
