Strategic investment

There is no doubt which way the investment tide is flowing for Australian lawyers - but are lawyers overseas also seeing the same focus on outbound China investment? "There is not so much a shift of work towards China outbound investment, but rather more attention given to it," says Jingzhou Tao, a partner at Jones Day in Beijing.  "While inbound investment has been going on for a long time, outbound investment activities in recent times - such as Chinalco, Minmetals and Lenovo - have received much attention due to their novelty and large values.

Indeed for some firms, outbound Chinese investment is nothing new at all. "For our firm, this is not a shift," Jia says. "We have already been advising Chinese clients with their investments abroad for a number of years now." 

What has changed, perhaps, is the volume of work. "The volume and size of overseas investments by Chinese companies will definitely continue to increase," he says. "This is just in line with the Chinese government's policy of encouraging Chinese companies to 'go global' and invest overseas.  In addition, compared to their western counterparts, many Chinese companies are in much better financial shape and equipped to take advantage of the low valuations of targets now."

Outbound Chinese investment is beginning to take a strategic bent. "Chinese companies have been making outbound investments for the purposes of gaining brand recognition as well as access to overseas distribution networks and technological know-how in the technology and automotive sectors," Jia says. "In the technology sector, notable transactions include Lenovo's acquisition of IBM's personal computer division in 2005. More recently, Beijing West Industries announced that it would acquire the US-based Delphi Corporation's global suspension and brakes business, giving the Chinese automaker access to Delphi's patents and markets." 

A shift in balance

Lawyers advising on inbound investment have found themselves dealing with a new playing field, which complicates negotiations. Jingzhou Tao describes a shift in power towards local Chinese companies.

"For a start, foreign companies who used to be cash rich are now finding their financial resources drying up; two, there is often a discrepancy between Chinese and foreign parties in their value assessment of the same Chinese assets; and three, the recent awareness of  China's huge market potential has put [Chinese parties] in a position to impose conditions in a deal," he says. "Only five years ago, the roles were the reverse and it was the foreign company that had the upper-hand. These factors cause renegotiation or sometimes the end of negotiations." ALB

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