CHINA INVESTMENT FLOWS COULD SLOW AFTER REGULATION CHANGED

CHINA INVESTMENT FLOWS COULD SLOW AFTER REGULATION CHANGED
CHINESE companies seeking outbound projects and Australian companies looking to secure Chinese outbound investment need to be aware of changes in the rules applying to foreign exchange remittances as these could impact their deal structures and timing, according to foreign investment experts from MinterEllison.

Partners Chris Carr and Bi Chen have highlighted the measures to tighten up the country's foreign exchange regulations, taken by China's central bank, the People's Bank of China (PBOC), in response to market anticipation of the depreciation of the country's currency, the Renminbi.

"We expect these will impact the China outbound investment environment," says Chen, who is based in MinterEllison's Beijing office.

"In particular, funds sourced within mainland China for outbound transactions will be subject to additional scrutiny and discretionary approval of the State Administration of Foreign Exchange ("SAFE") or its local branches."

Chen says that a key consequence of the changes will be that outbound transactions will take longer to complete, or that they could even be suspended, due to likely delays in fund flow processes, in particular transactions done by private investors as they are more likely to be considered "suspicious".

She notes that in bringing in these measures, Chinese regulators have reiterated that China will continue to uphold its "Going Global" strategy, thus encouraging Chinese companies to participate in international markets. 

"It does appear that payments relating to genuine transactions that are in compliance with Chinese laws and regulations will continue be approved and our observation is that the State owned enterprises are less affected by the recent regulatory changes," says Chen.

"However, we do expect that outbound investments by Chinese companies will slow in the first half of 2017 as these measures, their application by the relevant regulators, and their practical implications are further understood by the market."

Shanghai/Sydney-based partner, Chris Carr says he does not see this as a sign that China will necessarily turn off the tap for outbound investments.

"It's significant that China is tightening its FX regulations and we recommend that both Chinese investors and their Australian counterparts closely monitor developments," says Carr.

"As the sophistication of the Chinese regulatory regime increases, we expect what happens in practice to evolve and remains a critical limb in any China outbound transaction."

Business News Australia

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