Chinese State Council Releases Foreign Investment Instructions, Tailored to Beijing’s Foreign Policy Objectives
On August 18, China’s State Council issued a rare “circular” – or memo – on outbound investment in an effort to deliver a clear set of guidelines to the country’s leading companies.
On the surface, it appears Beijing is seeking to bring the foreign pursuits of these companies in line with the country’s industrial and foreign policy priorities, such as the “Made in 2025” domestic manufacturing initiative and the “One Belt, One Road“ (OBOR) international infrastructure development scheme. The memo also comes at a time, however, when Beijing is seeking to quell international concerns over Chinese investment having malevolent intent or otherwise risky qualities that has given rise to a proliferation of new screening initiatives similar to the Committee on Foreign Investment in the United States (CFIUS). In the view of RWR, a primary function of this memo is to persuade foreign governments that these concerns are unfounded (or, at minimum, that Beijing is changing course to address them).
The new regulations, for example, outline a somewhat vague commitment to prohibit investments in “core” defense-related industries without the approval of foreign countries. There is no definition of “core,” however, and, indeed, most countries (even those with the most rudimentary set of rules on foreign investment) already have clauses protecting their defense industries. The new document also prohibits any foreign activities that violate national interests or national security. Limitations have also been placed on entertainment ventures, such as sports clubs, film studios, and hotels, which, according to the Council, provide no “national benefit.” On the other hand, investment that advances China’s overall strategic objectives – most notably, in OBOR or in high-tech areas (likely including semiconductor manufacturing or artificial intelligence) – are encouraged.
Ultimately, the guidelines put out by Beijing appear to be designed to limit the frivolous overseas investments (such as Dalian Wanda’s investments in Hollywood and Anbang’s pursuit of trophy real estate assets, like the Coronado Hotel and the Waldorf Astoria) that have recently contributed to unwanted attention received from foreign regulatory bodies and, arguably, diverted Chinese capital away from core objectives in a way that has upset leadership. As noted above, they also appear designed and to demonstrate sensitivity to the dual-use or military industrial concerns that are the most common basis among foreign countries for denying a foreign acquisition.
While likely seeking to minimize negative press and attention in foreign countries going forward, however, this new memo has simultaneously reinforced one of the most significant concerns there is associated with Chinese companies, which is, quite simply, the reality that they are controlled or influenced by policy-makers in Beijing. It may be that these efforts to streamline Chinese investment to more efficiently contribute to Beijing’s foreign policy ambitions confirm for policy-makers the rationale behind new screening mechanisms being put in place.