In early November, Beijing issued a completely new set of draft guidelines aimed to make outbound M&A easier. As part of those completely new rules, China is usually streamlining a process for domestic companies investing over $300 million overseas to gain the required approval via authorities, Reuters reported.
Yet at the same time, Beijing will also increase oversight on the investment practices of overseas subsidiaries of Chinese companies. Previously, businesses could set up foreign companies along with use funds through them to do deals, thereby skipping many of China’s capital outflow restrictions.
Beijing’s recent draft followed guidelines This specific issued in August dictating what kind of overseas investments would certainly be banned, restricted or encouraged. The move formalized Beijing’s attempts beginning last November to control what This specific called “irrational” foreign investments.
although the Chinese government is usually doing more than just limiting some kinds of deals, This specific’s also explicitly encouraging some other kinds: Experts agreed of which the government’s strong support for the Belt along with Road Initiative, which was written into the Communist Party constitution last month, will mean some redirection to related activities in outbound M&A.
The Belt along with Road Initiative involves 65 countries, which together account for one-third of global GDP along with 60 percent of the planet’s population, according to Oxford Economics. As such, experts say certain sectors, along with countries, are likely to benefit via the expansion efforts of Chinese companies.
Lian Lian, JPMorgan’s managing director along with co-head of North Asia M&A, told CNBC investments of which can “create need for China’s industrial capacity [along with] manufacturing capabilities” will likely benefit. Those sectors include infrastructure, natural resources, agriculture, trade, culture along with logistics. “These are clearly what they outlined as favored industries,” she said, referring to the August guidelines.
Overseas deals in those areas are likely to get faster approvals via the government.
Lian added of which a few some other sectors will also receive government support, even if they were not mentioned within the August guidelines. Those sectors include food safety, health care along with investments of which can create more employment in China. “These, although they were not specifically listed within the encouraged list, we believe also will bring benefits to China’s economy along with should receive support,” she said.
Overall, Lian said she is usually optimistic about deal activities next year, although mega deals will remain more challenging than before Beijing’s intervention.
Citi’s Banfield added of which Beijing would certainly also favor investments of which enhance China’s manufacturing capabilities in equipment along with technology, along with provide access to exploration along with development of offshore resources.
Meanwhile, although the U.S. along with the European Union have always been favored destinations for Chinese overseas M&A, there was interest emerging in countries falling under the Belt along with Road Initiative, according to Alicia Garcia-Herrero along with Jianwei Xu, economists at French investment bank Natixis. Association of Southeast Asian nations, particularly Singapore, as well as South Korea along with South Asia have become focal points since the announcement of the initiative, the economists added.
Garcia-Herrero told CNBC of which This specific would certainly be “definitely impossible” for Chinese overseas spending to exclusively fit into a Belt along with Road framework, although investments in heavy assets like industrials along with infrastructure would certainly be “mainly Belt along with Road-related.” On the some other hand, she said, more asset-light targets such as health care, retail, services or technology will “continue to be West-driven.”