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US poll set to rein in Chinese buyers
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AFTER snapping up assets at a record pace so far this year, Chinese buyers are likely to hold back in the run-up to the US presidential election in November, nervous that campaign rhetoric might invite closer regulatory scrutiny of deals.
Uncertainty about the ultimate winner could also give buyers pause, said lawyers and bankers.
“The identity, let alone the foreign policy of the incoming presidential candidate in the US, isn’t exactly clear, and it is fair to say there is considerable uncertainty about how that will play out in the China market,” said Andrew McGinty, a Shanghai-based partner at law firm Hogan Lovells International, who has advised on mergers and acquisitions in China for two decades.
Chinese foreign acquisitions this year have totaled US$104 billion, close to the total announced last year, but there have also been a record nearly US$27 billion of failed attempts, mostly in the US, and mostly due to regulatory pushback. Figures for deals announced in March through May are already down from a peak in February.
The latest Chinese deal to run into regulatory trouble is Anbang Insurance Group’s proposed US$1.57 billion bid for Fidelity & Guaranty Life.
The New York regulator has asked Anbang to withdraw its application after it failed to provide information requested for processing the deal.
Any deal launched for a US target now is unlikely to secure all the required regulatory clearances before the November election, and most buyers will think twice before launching sensitive deals during the most intense period of campaigning, bankers say.
“That will create a certain amount of uncertainty within Chinese buyers because people want to know, ‘Well, who is it going to be looking at my deals?’ especially if you consider the CFIUS aspect,” said McGinty.
The Committee on Foreign Investment in the United States, which reviews deals for potential national security threats, has emerged as a major risk for Chinese companies making US acquisitions. The US is also seeking to broaden the committee’s powers.
Some technology-related acquisitions from China have faced unexpected and intense CFIUS scrutiny, leading to some deals being pulled. In February, China’s Unisplendor Corp scrapped a US$3.78 billion bid for Western Digital Corp after CFIUS said it would investigate the transaction.
“This (scrutiny) is not likely to decrease any time soon and may increase, at least in the short term, after a new president takes office,” said Anne Salladin, special counsel with Stroock & Stroock & Lavan LLP, who advises on CFIUS matters.
Donald Trump, the presumptive Republican nominee, has not made comments on Chinese acquisitions, but has called for 45 percent tariffs on imports from China. Chinese officials have generally avoided criticizing Trump directly, though they have disputed his claims.
A spokeswoman for Trump’s campaign did not respond to requests for comment.
Salladin said Trump has taken a hard line toward China and other countries during the Republican primary campaign, but noted that presidential candidates would often “move toward the center” during the campaign proper and might, if elected, govern differently from their campaign rhetoric.
“I think it’s too early to make any predictions at this point,” she added.
Another area of concern for some experts is how a new US president would tackle the long-contentious subject of foreign currency. China and the US have traded accusations of currency manipulation for years before Trump’s campaign chimed in.
“If that were to come back on the agenda, there could be some friction that would not be helpful for US-China deal-making,” said McGinty.
But anti-China sentiment is unlikely to deter Chinese buyers in the longer term, said Alberto Forchielli, founder of China-focused private equity firm Mandarin Capital.
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