Economic
News relating to
Property and Construction Market -
China
announces new policy which facilitates financing of private
enterprises‘ foreign investment -
The
way a project or business venture is structured may influence its
ability and the ease to attract investment from Chinese private
enterprises.
China's
State Administration of Foreign Exchange (SAFE) announces a significant
policy which facilitates financing of Chinese private enterprises'
foreign investment - "Adjustment
of foreign exchange control for promoting and guiding a healthy
development of foreign direct
investment by private enterprises". The
policy is about simplifying and relaxing capital release and capital
repatriation at foreign
locations. The policy also allows personal guarantee within China to
be used for raising finance off-shore for foreign direct
investment. This foreign exchange control adjustment goes hand in
hand with the policy
announced recently for implementation of supporting policies to
encourage Chinese private
enterprises to invest overseas, streamlining and framing management of
Chinese private enterprises' foreign investment, and delivering Chinese
government support
services to Chinese private enterprises for their foreign investment
plans. The new foreign exchange control takes effect on 1.7.2012
Capital flow
According
to the policy announcement, Chinese private enterprises will now be
able to take out bank loans in foreign currency within China, and to
have the funds released at foreign locations for their foreign
investment. Previously, Chinese private enterprises needed to buy
foreign currency with RMB, or to use their allocated foreign currency
within a quota, and to remit the funds to overseas. That process
involved layers of foreign exchange control & in/out remittance
verification steps, which are now gone.
Chinese private enterprises investing overseas wishing to repatriate
capital can now remit their
investment funds (in foreign currency) back to China under a much
simpler framework without going through tedious registration process of
decreasing capital or withdrawing capital. This implies that
investment capital can be repatriated and re-deployed much more
flexibly. However, the policy announcement has not elaborated on
repatriation of profit made in foreign investment and the link between
domestic operation and overseas operation of the same enterprise in
terms of capital flow.
Leverage for
raising foreign investment funds
The
policy indicates that several instruments can now be used to lever
raising of finance by Chinese private enterprises for foreign
investment. To promote the "Go-Abroad" policy, SAFE allows Chinese on-shore
enterprise to provide guarantee for loan taken out by foreign
investing enterprise. At the same time, a person entity within
China can now be a joint guarantor for the same loan (for raising level of
security and/or for bigger loan amount). The guarantee can be in
the form of personal guarantee, real property security, financial
security, or other allowed form of security. It is reported that
shares in foreign companies may also be accepted as a form of security.
It is reported that by May 2012, the total lending in foreign currency
in China is US$566 billion, which is only approximately
6% of the total lent amount in China. The figure is expected to
increase under the new foreign investment (outside China)
and exchange control policies.
Implication for business
The amount of investment that a Chinese private enterprise can exercise
is not restricted by a quota system anymore. Instead, it now
depends on how much an enterprise can raise in foreign currency debt
funding or bond issue. That in turns depends on quality of
security which can be put forward. It is expected that foreign
currency debt transaction and debt trading may take place among Chinese
private enterprises when there is difference in finance raising
capacity.
For foreign local businesses who wish to attract investment from
Chinese private enterprises, those who are structured with clearly
identifiable asset class which can be valued with acceptable valuation
method in the market - (suitability for use as security in debt
finance), and those with simple company holding structure -
(suitability for merger, acquisition, share transfer), may have a
higher chance of success in attracting investment from Chinese private
enterprises, mainly because of the ease or not for the Chinese private
enterprises to raise finance back home.
AAPAC Group can help
If you need assistance in terms of structuring your project or business
venture to prepare
for B2CB (Business to Chinese Business) investment transaction, our
company can
help, particularly if your business is in property development, project
management, planning, architecture, design, engineering, construction,
building material & system, properties & real estate.
Fabian Chan
Source: China
SAFE, Sina Finance - 14.7.2012
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