New Rules Offer Clarity On China’s Outbound M&A Crackdown

On August 18, 2017, China’s State Council issued guidelines clarifying rules passed a year ago by the State Administration of Foreign Exchange (SAFE) limiting outbound investments as cover-up to move money out of China.

The new guidelines provide different policies for Chinese companies’ investment overseas, broadly dividing overseas investment into three categories:

  • investments in “real estate, hotels, entertainment, sport clubs, [and] outdated industries” are restricted;

  • investments in sectors that could “jeopardize China’s national interest and security, including output of unauthorized core military technology and products” and investments in gambling and pornography are prohibited; and

  • investments in establishing R&D centers abroad and in sectors like high-tech and advanced manufacturing enterprises that could boost China’s Belt and Road Initiative, and investments that would benefit Chinese products and technology will be encouraged by Chinese outbound regulators.

These guidelines are new and we have to wait and see how they will be interpreted and implemented by regulators. Still, there may be reasons to believe they will have a net positive effect on the China-U.S. M&A market. The new guidelines bring about greater certainty to buyers, lenders and targets on whether a deal will get approved by Chinese regulators.

The volume and size of Chinese outbound M&A is already on an upward trajectory in the second quarter of 2017, as buyers are already getting more acclimated to SAFE rules announced at the end of 2016 restricting the outflow of Chinese capital. Chinese buyers completed 94 deals totaling $36 billion in Q2, compared to the 74 deals totaling $12 billion in Q1. The current Chinese outbound M&A trend, coupled with greater certainty under the new guidelines, is likely to result in more Chinese outbound M&A deals during the last quarter of 2017, as well as in 2018.

This post was written by Shang Kong & Zhu Julie Lee of Foley & Lardner LLP © 2017

For more legal analysis go to The National Law Review

Revised Travel Ban Coming?

The Trump Administration reportedly may replace the current travel ban with a country-specific set of restrictions.

In June, the Supreme Court allowed the government to begin enforcing the 90-day travel ban against individuals from Iran, Libya, Somalia, Sudan, Syria, and Yemen who had no bona fide relationship to the United States. The 90-day ban will expire on September 24. The 120-day ban on refugees also went into effect in June. The Supreme Court plans to hear the full travel ban case on October 10.

The Department of Homeland Security’s recently finalized classified report on screening foreign travelers may support anticipated changes to the travel ban. Substituting a new ban could change the dynamics, potentially making the case before the Supreme Court moot or leading to a remand of the case for further hearing at the lower court level.

The new restrictions are expected to be open-ended and based upon the DHS review and identification of countries with deficient security standards. More than six countries may have been identified. Additional countries could be added to the banned list, others could be removed, and still others might become subject to certain visa restrictions.

This post was written by Michael H. Neifach of Jackson Lewis P.C. © 2017
For more legal analysis go to The National Law Review