Legal advisers can look forward to larger and more sophisticated transactions involving Chinese investors as acquirers mature and target markets become more receptive, writes George Russell
James Hosking can tell when Chinese investment into the US skyrockets. His litigation docket fills up. Hosking, a partner with the Chaffetz Lindsey firm in New York, points to a correlation between “a wave of investor litigation over the past couple of years” and rising foreign direct investment from the mainland.
Chaffetz Lindsey has represented a number of Chinese clients in dealing with disputes related to investment in the US. “The more controversial growth area for disputes has been with the US government,” Hosking says, citing the use of US President Barack Obama’s rarely invoked executive power to block Chinese-owned Ralls Corporation’s acquisition of wind farms in the state of Oregon.
In addition, a US Congress committee recently issued a warning to American companies against doing business with Chinese telecommunications companies Huawei and ZTE. “The options for litigation to challenge these government actions are limited,” Hosking notes. “We have advised on how Chinese companies can use investment treaties to try to restrict government abuses of power.”
Litigators, of course, do not directly address transactional issues, but statistics back up such anecdotal evidence. According to the Ministry of Commerce (MOFCOM), Chinese investors made direct investments in 2,163 overseas enterprises in 116 territories in the first half of 2012. Total non-financial direct investment overseas amounted to US$35.42 billion, a year-on-year rise of 48.2%.
Chinese companies have been officially encouraged to invest overseas. In June, for example, 13 Chinese government departments, including the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs, the People’s Bank of China and the State Administration of Foreign Exchange issued a joint notice entitled Advice on Implementation of Encouraging and Guiding Private Enterprise to Actively Undertake Offshore Investments.
In addition, many US firms can confirm increasing numbers of transactions involving mainland corporations. “It is a good market – it’s better, deeper and broader,” says Anthony Root, a Hong Kong partner who heads the Asia corporate practice of Milbank Tweed Hadley & McCloy. Root says that despite increased scrutiny from Washington, Chinese companies remain committed to expanding their investment in the US market, which is generally viewed as a bargain.