The main trend in PRC governmental approvals of overseas investments by China enterprises will be a gradual loosening of control, but there is likely to be a tightening of macro administration over enterprises under the central government, and over specific assets and the countries where investments are made. Certain jurisdictions are also clearly beefing up their oversight of investments by PRC state-owned enterprises (SOEs) in sensitive industries and assets. PRC state-owned and private investors are more sophisticated at deal execution and improving their abilities in complex cross-border transactions.
The fact that Chinese outbound regulatory approvals are uncertain in the length of approval time and approval outcome has a big negative impact on the execution of complex cross-border transactions by PRC investors. But looking at some recent large transactions, it seems the relevant Chinese approval authorities were willing to adapt to developments of the market and take relatively practical approaches to expedite the review and approval process of outbound investments. For example, in its takeover of Canada-listed Talisman, Tianqi Lithium managed to secure all of the relevant PRC government approvals before executing the scheme implementation deed.
The other interesting phenomenon is that many overseas subsidiaries established by mainland Chinese companies take the view, when reinvesting abroad, that as long as the acquisition funds are completely paid abroad, without security provided by the parent in China, they do not need to be concerned with any PRC regulatory approval issue. But according to the regulations, any overseas reinvestment by these offshore subsidiaries still requires the approval of the National Development and Reform Commission (NDRC). Furthermore, if finance is sought from the overseas branches of Chinese financial institutions, those financers will generally require that all the Chinese outbound regulatory approvals be included as one of the drawn down conditions.
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Xiong Jin is a partner at King & Wood Mallesons in Beijing. He can be contacted on +86 10 5878 5158 or by email at email@example.com