18 March 2019

New law 'catalyst' for tenfold foreign investment increase

US$1.5 trillion of inbound investment into China projected over next 10 years as new foreign investment law kicks in, says Linklaters research.

Linklaters analysis projects US$1.5 trillion of inbound investment into China over next ten years catalysed by new Foreign Investment Law. This is more than triple the level of the previous ten years. A full report will be published later this month.

Strong message

The newly signed Foreign Investment Law in China dramatically increases scope for foreign investors’ Chinese M&A and investment strategies. The level of inbound M&A, which stood at a record US$56 billion in 2018, is projected to grow still further as the new Foreign Investment Law, signed on 15 March 2019, kicks in on 1 January 2020. The new foreign investment law will replace the three older statues that govern foreign invested entities and serve as the ‘unified law’ for foreign investments in China. The law promises among other things equal treatment and intellectual property protection for foreign invested entities. William Liu, managing partner for Linklaters in China, commented ‘the increasing liberalisation of foreign investment into China will be a key component for the development of the Chinese economy to move up the value chain, to meet the needs of its growing middle class, and to boost exports. 2018’s shortened Negative List sent a strong message to international market participants catalysing investment into key sectors such as automotive and financial services. The newly signed Foreign Investment Law will only help to accelerate this process as international investors and companies develop their Chinese deal-making experience.’

Report publishes March

Eric Liu, managing partner for Zhao Sheng, Linklaters’ joint operation partner in China, said ‘the proposed changes will definitely be welcomed by foreign market participants and lead the next upsurge in foreign investment. Although the foreign investment management mechanism has evolved rapidly in recent years, there are still many changes to go both in legislation and in practice.’ The research was produced in connection with an upcoming Linklaters report that highlights several key trends that should be viewed as guidelines for success by international companies, investors and brokers seeking to complete Chinese inbound M&A deals. These include the importance of transparency, the need for more executive education programmes, and, guidance on how the wider global situation may impact deal completion. The report was written in connection with Linklaters' attendance at the China Development Forum (CDF) Beijing later on in March, China’s foremost platform for dialogue between its senior leadership and representatives from global businesses and will be published shortly thereafter.