In 2017, and the first half of 2018, the Chinese government’s tightening of checks on overseas investments and imposition of controls on renminbi capital outflows had a significant cooling effect on China outbound transactions. Chinese outbound M&A into the US slowed, in particular; whilst this is partly due to the aforementioned regulatory issues in China, it is also an upshot of the Committee on Foreign Investment into the United States (CFIUS) taking a more stringent approach to reviewing transactions for national security risks. Further, there are currently in place proposals to further expand the powers of CFIUS to investigate and block foreign transactions. These developments in the US have coincided with Chinese investors increasingly shifting their investment strategies elsewhere, particularly to Europe; what is striking, however, is Germany is stepping up efforts to protect key companies from Chinese investors – it tightened controls on foreign investments in 2017 following a series of Chinese takeovers. Similarly, the UK government recently published a White Paper setting out a proposed screening regime in relation to foreign investments into companies, where those transactions may have potential national security implications.
M&A activity in Hong Kong in 2017 was particularly notable in sectors such as real estate and insurance. A major driver of deal activity involved mainland insurance companies investing into Hong Kong companies, and insurers expanding overseas. Two notable real estate sector transactions included the spin-off and Hong Kong Main Board listing of Wharf Real Estate Investment Company, and also the $5.15bn acquisition of The Centre tower by a consortium of Hong Kong and PRC investors.
On the capital markets front, in April 2018, a hugely significant development saw the Hong Kong Stock Exchange make changes to its Main Board listing rules in order to enable biotech companies to list before they become profitable, and also to attract listings applications from high-growth (tech sector) issuers with weighted voting rights. It is hoped that the rules changes will make Hong Kong a credible challenger to exchanges such as NASDAQ. Education has been a particularly hot area for IPO listings in Hong Kong, with a number of China-based private education operators coming to the market. It is worth noting, however, that the PRC government announced in August 2018 that it was going to clamp down on the sector over issues concerning financial reporting and certification. It therefore remains to be seen if regulatory oversight of this fast-growing industry will have an impact on the strong run of education sector IPOs involving China-based entities.
Elsewhere, China’s hugely ambitious Belt and Road Initiative is seen as a major avenue of opportunity for mandates across a broad cross-section of disciplines, including banking and finance, corporate, dispute resolution and projects. The market is also keeping a keen eye on the proposed Greater Bay Area initiative; this is a groundbreaking project which is intended to link Hong Kong, Macau and nine cities in Guangdong province, and form a hub of economic activity in areas such as trade and logistics, financial services, advanced manufacturing and new technologies/innovation.
Published in 2019 at https://www.legal500.com for The Legal 500 Asia Pacific 2019