China moves to further relax approval requirements on outbound investments by Chinese investors: A step in the right direction
05 February 2015Hogan Lovells Outbound Alert
Since the announcement of the "go global" ("走出去") policy in 2000, the People's Republic of China ("PRC" or "China") has achieved a tremendous acceleration in its overseas foreign direct investment, transporting China from a country punching well below its weight in the first two decades of reform post 1979 and the opening-up policy to being one of the world's largest exporters of capital. The numbers coming out of China in the last few years bear witness to this phenomenal turnaround.
Based on Ministry of Commerce ("MOFCOM") statistics, the upward trend is very clear:
- In 2011, total investment was US$74.65 billion, involving investments into 177 countries and regions through 18,000 offshore entities;
- In 2012, total investment was US$87.8 billion, increasing 17.6%; and
- In 2013, total investment was US$90.17 billion in 5,090 enterprises in 156 countries and regions, increasing 16.8% (excluding investments in financial institutions).
Record-breaking levels of transactional activities have been driven by high levels of liquidity both within private and state owned enterprises, lower valuations of foreign targets due to the global financial crisis and increased competition in the Chinese market. Several important themes of securing natural resources, access to and distribution of food and agricultural products and technology plays have emerged. There was the acquisition of AMC Entertainment, a US movie theatre chain operator, by Dalian Wanda Group, for USD2.6 billion in 2012 which highlighted the broad span of investments that have taken place in this area. This was followed in 2013, when the Chinese state-owned oil and gas giant, CNOOC Ltd. made its USD15.1 billion acquisition of Canadian oil and gas company Nexen Inc. in China's largest-ever offshore acquisition to date. The acquisition by Shuanghui International Holdings Ltd, China’s largest pork producer, of Smithfield Foods Inc. for USD4.72 billion also in 2013 further illustrated China's purchasing power and appetite. China's Internet giants Alibaba, Tencent and Baidu, each of which are privately-owned home-grown tech start-ups have also ventured offshore to develop new markets and acquire new technologies, with debate continuing as to whether, following its US listing, Alibaba will be able to build on its platform in China to compete globally with players like Amazon and eBay.
One of the challenges faced by Chinese investors seeking to go global is navigating the regulatory maze to get the required approvals to invest offshore. Historically the outbound approval process started off as an 'obstacle course' where the competitors were effectively blindfolded as the requirements were often unclear, but in recent developments, many of the obstacles have been removed (as have the blindfolds), and there is a clear trend towards simplifying the approval maze to the point where only the largest or most sensitive transactions are now subject to actual approval, with record filing increasingly becoming the norm. Transparency has also increased with a number of new rules to guide investors.
The note examines the scope, thresholds and key changes in reforming the outbound investment regulatory process and is an update to our earlier note "China Moves to further relax approval requirements on outbound investments by Chinese investors" dated 30 November 2014.