Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Foreign Investment

CHINESE UPDATE – Significant Changes in Law Ease Controls Over FDI and M&A

Editors’ Note:  Contributed by Adam Li, a partner at JunHe, and by Fang He, a partner at JunHe’s Beijing headquarter; both are members of XBMA’s Legal Roundtable. Mr. Li is a leading expert in international mergers & acquisitions, capital markets and international financial transactions involving Chinese companies. Ms. He specializes in M&A and outbound investment from China. This article was authored by Daniel He (He, Kan), a partner based in JunHe’s Shanghai offices who specializes in mergers and acquisitions, foreign direct investment, general corporate law and regulatory compliance.


From October 1, 2016, a new FDI administration system will be launched in China.  Under the new system, MOFCOM approval will not be required for incorporation or acquisition of a foreign invested enterprise (“FIE”), unless its business is on the Nationwide Negative List released by the State Council.  This will increase efficiency for incorporation of and acquisitions involving FIEs, reduce the uncertainty inherent in interactions with Chinese government authorities, and ease the government’s control over FDI and M&A activities.

Main Article:

Significant Changes in FDI Laws

On September 3, 2016, the Standing Committee of the People’s Congress of the PRC amended the three major legislations on foreign direct investment (“FDI”) applied to FIEs, i.e. the Sino-Foreign Equity Joint Venture Law, the Sino-Foreign Cooperative Joint Venture Law, and Wholly Foreign Owned Enterprise Law (the “Amendments”). FIEs include Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures and wholly foreign owned enterprises.  The Amendments will be effective from October 1, 2016, pending the release of the nationwide negative list on administration of foreign investment by the State Council (the “Nationwide Negative List”).

As contemplated by the Amendments, certain corporate matters of FIEs (such as incorporation, dissolution, capital increase/decrease, equity transfer, renewal of company term, etc., the “Relevant Corporate Matters”), the joint venture contract and articles of association (including the amendments thereto), will no longer require approval by the Ministry of Commerce of the PRC or its local counterparts (“MOFCOM”). Instead, a filing with MOFCOM will suffice, unless the business of the FIE falls under the Nationwide Negative List.  MOFCOM has issued draft regulations for soliciting comments, which address the filing requirements in greater detail.

For clarity, the Amendments have no impact on the approval of the Anti-Monopoly Bureau of the PRC Ministry of Commerce on the concentration of undertakings required under PRC Anti-Monopoly Law.


  • Current FDI Legal Regime

Since the three major laws on FDI were first enacted in 1979, 1986 and 1988 respectively, the Relevant Corporate Matters of FIEs, including the joint venture contract and articles of association, have required approval from MOFCOM, regardless of substance of the matter.  In practice, MOFCOM would perform a substantial review of the terms of transaction documents, and sometime challenge the terms that appear unusual to them even if they are compliant with the relevant laws.  In some cases, local MOFCOM may even require the transaction documents to be prepared based on their standard simple form.  It would typically take 3-5 weeks to complete the MOFCOM approval process, and the process may even be prolonged if additional time is needed to address MOFCOM’s comments.

  • Pilot Reform in Free Trade Zones

The concept of “negative list” was first introduced into China’s legal system in 2013 when it was implemented into the Shanghai Free Trade Zone before the pilot program later expanded to three other free trade zones in Guangdong, Tianjin and Fujian.  Under the “negative list” based FDI administration system, most foreign invested companies would be allowed to set up in the same manner as domestic companies, unless listed in the “negative list”. This approach signifies a long leap for foreign investment administration in China, from having a requirement of obtaining government authorities’ approval on each foreign-invested project/entity to a procedure that applies equally to both domestic and foreign investors (unless the foreign investment is on the negative list).

One of the centerpieces of the reform is that, if the contemplated business is not on the negative list, MOFCOM approval will no longer be required, and a filing with MOFCOM will suffice.  The filing process only requires the submission of minimal documents and limited information – MOFCOM will not review transaction documents such as the joint venture contract, articles of association and share purchase agreement; and the filing can be completed in few days.  This increases efficiency for FIEs by saving them substantial time and effort, and reduces the uncertainty inherent in the interaction with Chinese government authorities.

The above negative list based FDI administration system was implemented on a pilot basis for a short term expiring on September 30, 2016 and only in four free trade zones.  With the Amendments and the Nationwide Negative List put in place, the benefits will be extended to the rest of China.

Eased Control over FDI and M&A

Generally, the Amendments convey a positive message to foreign investors: foreign investment is welcomed by China and the Chinese government is making progress to ease control over FDI and mergers and acquisitions (“M&A”) activities.  Essentially, the procedure and timeline for the Relevant Corporate Matters of an FIE and a domestic company will be the same.

With respect to M&A activities, in addition to the shorter timeline and simplified process discussed above, the main benefits arising from the reform under the Amendments include the following:

  1. Price Adjustment Mechanism – Where MOFCOM approval is required for a purchase agreement, as a matter of practice, in most cases, MOFCOM will not approve a purchase agreement with a price adjustment mechanism, or will indicate a fixed price on its approval letter regardless of the price adjustment mechanism provided in the purchase agreement. As a result, if a transaction contemplates cross border payment, the agency in charge of foreign exchange control, i.e. the State Administration of Foreign Exchange (“SAFE”), will only approve payment of the fixed price specified on the MOFCOM approval letter.  As MOFCOM approval is no longer required for purchase agreements, we expect that parties will have more liberty to agree on and adopt a price adjustment mechanism, something that is commonplace and desirable for most transactions.
  2. Enforcement of Certain Rights – Certain shareholder’s rights such as call option, put option, tag along, drag along and anti-dilution rights are commonly seen in transaction documents for an FIE, but they generally have enforcement difficulties because the equity transfer or issuance for exercising such rights is subject to MOFCOM approval. Said approval would be withheld if the parties cannot submit an equity transfer agreement, board resolutions and other documents required by MOFCOM. This means that it would be very difficult for a party to exercise such rights without the cooperation of the other party in signing and delivering the additional documents. Since MOFCOM approval is not required under the Amendments for the equity transfer or issuance, it would likely be much easier to enforce such rights by completing the MOFCOM filing process – a formality in nature and therefore will not have to be a closing condition.
  3. Method of Payment. In the context of M&A, although PRC law does not specify the form or method of payment, in practice, MOFCOM would usually require that the consideration be paid in cash.  Under the Amendments, the purchase agreement will not be subject to MOFCOM approval and it will therefore be possible for parties to agree on alternative forms of consideration, including non-cash payment.

Things to Expect

  1. Nationwide Negative List. The Nationwide Negative List has yet to be seen but we expect that it will be prepared based on the existing negative list that has been adopted by the four free trade zones.
  2. Other Agencies. It is uncertain how soon the other agencies (e.g. SAFE) will change their administration systems and practices to accommodate the changes contemplated under the Amendments.  It is also possible that it may take local provinces and cities (particularly those in remote areas) a longer time to follow this national reform, and there will have to be a transition period.
  3. M&A Rules. It remains to be seen if and to what extent the major legislation on cross boarder M&A, i.e. the Regulations on Mergers and Acquisitions of Domestic Enterprise by Foreign Investor, will be amended in light of the Amendments.  It is likely that MOFCOM approval will remain required for such acquisitions of domestic enterprise by foreign investor.
  4. Foreign Investment Law. At the beginning of 2015, a draft version of the Foreign Investment Law was released to the public for feedback.  The Foreign Investment Law, if enacted, will replace the above-mentioned three major legislations on foreign direct investment, and contemplates an overhaul of China’s FDI legal regime.  The negative list based FDI administration system is a part of the major reforms provided in the draft Foreign Investment Law, and has been implemented while the other intended reforms are still being debated.  Following the major progress under the Amendments, we anticipate that the legislation process for the Foreign Investment Law will be expedited.
The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

AUSTRALIAN UPDATE: Changes to Australia’s Foreign Investment Regime

Editor’s Note: This report is contributed by Philip Podzebenko, a member of XBMA’s legal roundtable. Mr Podzebenko is a member of Herbert Smith Freehills’ Corporate Group. It is based on research conducted by other Herbert Smith Freehills employees, Tony Damian, Partner, Malika Chandrasegaran, Senior Associate, and Gila Segall, Vacation Clerk, Sydney.


  • A new foreign investment regulatory regime applies from 1 December 2015.
  • The ‘substantial interest’ threshold above foreign investors must notify Australia’s Foreign Investment Review Board (FIRB), has increased from 15% to 20%.
  • Specific rules now apply to foreign investments in the agricultural sector, following the introduction of the concepts of ‘agribusiness’ and ‘agricultural land’.
  • The rules applicable to investments by foreign governments, and real estate investments, have been clarified.
  • Tougher criminal penalties and a new set of civil penalties have been introduced for contraventions of the regime.
  • Foreign investors are now required to pay fees in relation to any FIRB application they make.

Main article

From the 1 December 2015, a new foreign investment regime came into force, marking a significant reform of Australia’s foreign investment legislative framework.

The new regime comprises of the Foreign Acquisitions and Takeovers Act 1975 (Cth), a new set of regulations, and the Register of Foreign Ownership of Agricultural Land Act 2015 (Cth).

The changes seek to ensure Australia’s national interest is maintained while also strengthening foreign investment in Australia.

Substantial interest threshold

Foreign persons who intend on acquiring a ‘substantial interest’ in an Australian entity (generally above $252 million) must notify the Foreign Investment Review Board (FIRB) and obtain approval for the acquisition.

Under the new regime, the substantial interest threshold has increased from 15% to 20%. This means that certain acquisitions which previously attracted the notification requirement may no longer do so.

Agricultural land and business

Regulatory scrutiny of foreign investment in the agricultural sector has increased under the new regime.


Direct private investments in an agribusiness attract a $55 million threshold (indexed annually). A higher threshold ($1094 million) applies for investors from countries who have free trade agreements with Australia, which comprises of the US, New Zealand and Chile.

An agribusiness is defined to include Australian entities or businesses which carry on certain primary production and downstream manufacturing businesses contained in the Australian and New Zealand Standard Industrial Classification Codes. These include meat, poultry, seafood, dairy, fruit and vegetable processing and sugar, grain and oil and fat manufacturing. At least 25% of the business’ revenue or assets must come from the carrying on of the prescribed businesses in order to meet the statutory definition.

Agricultural land

Agricultural land is defined as any land in Australia that is used, or could reasonably be used, for a primary production business.

Agricultural land is subject to a $15 million notification threshold and is assessed on a cumulative basis. Certain exceptions apply: investors from countries in free trade agreements with Australia (US, NZ and Chile) attract the $1094 million threshold, and investors from Singapore and Thailand are subject to a $50 million threshold only in relation to land used wholly or exclusively for a primary production business.

The new regime also establishes an agricultural land register which contains all information about foreign interests held in Australian agricultural land. While the register will not be publicly accessible, certain information will be made available to the public on a regular basis. Foreign investors with interests in Australian land must notify the register of their interest or any changes within 30 days.

Commercial land

Regulation of foreign investments in commercial land depends on whether the land is vacant or developed, and whether it constitutes sensitive commercial land.

All private foreign acquisitions of vacant commercial land require notification, regardless of the value of the investment. Acquisitions of $252 million or more in developed commercial land require notification, unless the interest relates to certain sensitive land, in which case a $55 million notification threshold applies.

Sensitive land is defined broadly, and may include land leased to the Commonwealth, land used for military or security purposes and land on which public infrastructure is located, such as an airport, or electricity networks or telecommunications.

A threshold of $1094 million for agreement country investors applies in relation to developed land regardless of whether it constitutes sensitive land. The relevant country investors includes Chilean, Chinese, Japanese, New Zealand, South Korean and United States investors.

Foreign government investors

Consistent with the previous regime, approval must be sought for most direct interests acquired in Australian land or business by a foreign government investor.

Under the new regime, a foreign government investor includes a foreign or separate government entity, as well as private entities in which a foreign or separate government entity holds a substantial interest (20%).

The regime also provides that all foreign government investors from the same country will be considered as associates, and their interests aggregated.


The new regime introduces tougher criminal penalties and new civil penalties for both individuals and companies. Now, criminal penalties for individuals have increased to $135 000 (or 3 years imprisonment). The new civil penalties include fines of up to $45 000 for individuals. For both criminal and civil contraventions the penalty for corporations is 5 times that for an individual.

Penalties are in addition to other powers, including divestiture orders.


The new regime imposes a set of fees onto foreign investors for all foreign investment applications. These fees are indexed and are determined by the value and type of investment. The fee must be paid before the Treasurer will take any action in regards to the application.

Some examples of common application fees include:

  • Vacant commercial land – $10,000,
  • Non-vacant commercial land – $25,000,
  • Private acquisition of an interest in a mining or production tenement – $25,000,
  • Foreign government investor to acquire an interest in a mining, production or exploration tenement, or a 10% interest in a mining, production or exploration entity – $10,000,
  • Acquiring an interest in an Australian entity, including an agribusiness, where the consideration does not exceed $1 billion – $25,000,

Acquiring an interest in an Australian entity or business, including an agribusiness, where the consideration exceeds $1 billion – $100,000.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

CHINESE UPDATE – PRC Authorities Tighten Review on Outbound Investment Transactions

Editors’ Note: Contributed by Ms. Fang He, a partner at JunHe and a member of XBMA’s Legal Roundtable. Ms. He has broad experience in cross-border M&A, private equity, trust and assets management. This article was authored by Ms. Fang He and Ms. Runze Li. Ms. Li is an associate at JunHe.


  • Due to RMB depreciation and foreign exchange fluctuation, PRC authorities have tightened review on the truthfulness of outbound investment, for purposes of combating exchange arbitrage and underground private banks.
  • SAFE launched a new system to supervise individuals’ foreign exchange activities since January 1, 2016, and will list violative individuals on a “Supervised List”.
  • SAFE launched a series of special examinations to be conducted by banks in August, 2015, to enhance the management on the foreign exchange registration, fund wire-out, overseas loan under domestic guarantee and other aspects in connection with the outbound investment transactions.
  • Due to capital outflow pressure, certain local authorities even imposes stricter interpretation of law, and prohibit outbound investors from making investment by using registered capital.
  • Despite the tightened review and stricter local practice, we believe they will not hinder truthful outbound investments, although PRC authorities may take longer time for processing the case and may require more supporting documents.

Main Article

Due to RMB depreciation and foreign exchange fluctuations, authorities of People’s Republic of China (“PRC”) have tightened review on the truthfulness of outbound investment, for purposes of combating exchange arbitrage and illegal private banks.

This article covers four tightened sections: SAFE enhances oversight on individuals’ foreign exchange quota control; SAFE tightens review on truthfulness of outbound investment; SAFE tightens review on truthfulness of overseas loan under domestic guarantee, and; local authorities may impose stricter interpretation on the fund qualified for outbound investment.

  1. SAFE Enhances Oversight on Individual Foreign Exchange Quota Control

SAFE launched SAFE Notice to Furtherance Issues Concerning the Management of Individual Foreign Exchange Control (《国家外汇管理局关于进一步完善个人外汇管理有关问题的通知》) on December 25, 2015 (“SAFE Notice [2015] No.49”), which requires the bank to adopt a new system to supervise individuals’ foreign exchange activities (including purchase and settlement of foreign currencies) since January 1, 2016.

SAFE Notice [2015] No.49 prohibits individuals from purchasing/borrowing foreign exchange quota, splitting settlement, and taking other measures to circumvent the PRC foreign exchange quota control (i.e., 50,000 USD or equivalent per annum). Otherwise, SAFE may list the violative individual on a “Supervised List”. Specifically,

  • If an individual offers his/her foreign exchange quota to others for improper purpose, SAFE will issue (through relevant bank) a warning notice to such individual for his/her first violation. If such individual conducts a second violation, SAFE will list him/her on the “Supervised List”;
  • If an individual takes advantage of other’s foreign exchange quota in order to circumvent the quota control, SAFE will list him/her on the “Supervised List” at his/her first violation;
  • The term of supervision lasts for the rest of such year plus 2 additional years. During the term of supervision, if the supervised individual intends to purchase or settle any amount of foreign currency into RMB, he/she shall provide his/her identity card along with supporting documents proving truthfulness of the transaction to the bank for verification and review.

Despite the above, we understand that, an individual listed on the “Supervised List” is still able to purchase/settle foreign currency as long as satisfactory supporting documents are provided.

Currently an individual still cannot make outbound investment directly, but may do so through a company owned by him/her where the company should conduct outbound investment filing/approval procedures with National Department of Reform Commission (“NDRC”) and Ministry of Commerce (“MOFCOM”).

  1. SAFE Tightens Review on Truthfulness of Company Outbound Investment

To our knowledge, SAFE launched a special examination against the banks in August, 2015, and required the bank to strengthen document review on the source of fund and truthfulness of the transaction.

Recently, for an outbound investor who intends to purchase a large amount of foreign currency, the bank may inform such investor to discuss the usage of fund at SAFE at an arranged time.  This is a new and additional procedure which may prolong the timeline required to deal with PRC government for outbound investment.

  1. SAFE Tightens Review on Truthfulness of Overseas Loan under Domestic Guarantee

According to the 2014 version of Foreign Exchange Management Guidelines on Cross-Border Guarantee (《跨境担保外汇管理操作指引》), if a PRC company acts as a Guarantor for an overseas loan (i.e., both the Guarantee and the Creditor are foreign entities), the PRC Guarantor shall conduct guarantee registration with local SAFE within 15 business days after execution of the guarantee agreement. If the Guarantee defaults the repayment of loan, the PRC Guarantor may make the guaranteed payment at the bank by presenting the guarantee registration documents. In addition, the PRC Guarantor shall conduct external debt registration with local SAFE within 15 business days after the guaranteed payment.

To our knowledge, SAFE launched a special examination against the banks in August, 2015 to strengthen review on the claimed default and the guaranteed performance payment, i.e., the bank shall check whether the agreement clauses have any inclination for default, whether the PRC Guarantor has conducted external debt registration after guaranteed performance payment, whether the Guarantee has executed a new guarantee agreement with the PRC Guarantor, reasons for Guarantee’s default, flow of the loan, usage of the loan, etc.

  1. Local Authorities May Impose Stricter Interpretation on Fund Qualified for Outbound Investment

We noticed in our recent outbound investment practice that certain local authority even imposed stricter interpretation of law probably due to pressure of capital outflow. For example, one of our clients (a PRC company) intended to make outbound investment through the capital of a to-be-established subsidiary. But it was told by local MOFCOM that only profits were qualified source of fund, while the registered capital of a to-be-established subsidiary could not be used for outbound investment, which we have not heard of before.

Despite the tightened review and stricter local practice, we believe they will not hinder truthful outbound investments, although PRC authorities may take longer time for processing the case and may require more supporting documents.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

CANADIAN UPDATE – Top Competition and Foreign Investment Review Trends and Issues for 2016

Editors’ Note:  This memo was produced by partners George Addy, John Bodrug, Charles Tingley and Jim Dinning, and associate Alysha Manji-Knight, of Davies Ward Phillips & Vineberg LLP’s Competition & Foreign Investment Review practice.  It was submitted to XBMA by Davies partner Berl Nadler who is a member of XBMA’s Legal Roundtable.

Main Article

In our annual forecast of the year ahead for Canadian competition and foreign investment review law, we evaluate how developments in 2015 will influence these areas of the law in 2016. Our top issues and trends to watch for this year include the following:

  • The impact of the new federal government. Although foreign investors can generally expect “business as usual” under the new Liberal government, incremental reforms to the Investment Canada Act are likely – in particular, a clarification of the net benefit test. With regard to competition legislation proposed by the previous government, it remains to be seen whether the Liberal government will resuscitate the much-criticized Price Transparency Act or move ahead with non-controversial technical amendments to clarify the Competition Act.
  • An increasing focus on the digital economy and other innovative industries by the Competition Bureau. The Commissioner of Competition recently commented that the impact of innovation should be the “predominant concern in some industries.” Signs of this focus were already evident in late 2015 and can be expected to increase in the new year.
  • A focus by the Bureau on market studies: Are formal powers required? The Bureau has identified market studies as a key tool to inform policy makers about unnecessary obstacles to competition. There has been some criticism that the Bureau lacks the jurisdiction to carry out these studies, which the Bureau may seek to address by asking for amendments to the Competition Act that would provide it with the necessary formal powers.
  • The Competition Tribunal’s forthcoming abuse of dominance decision. Expected to be released early this year, the Competition Tribunal’s decision in the Commissioner of Competition’s abuse of dominance litigation against the Toronto Real Estate Board will set the stage for future enforcement in this area.
  • A possible reassessment of Competition Bureau decision-making. Given the number of significant defeats the Bureau has suffered in recent years, including in two major criminal cases in 2015, it may revisit its investigatory and decision-making processes in high-profile matters.
  • Contested mergers and hold separate orders. In light of the Competition Tribunal’s May 2015 injunction decision in the contested merger between two major gasoline retailers, we expect that the Bureau will increase its efforts to obtain economic evidence from merging parties during its reviews of transactions that it is considering challenging. It’s also likely that the Bureau will continue to use applications under section 104 of the Competition Act as a tool in future contested merger proceedings.
  1. Canada’s new government and the Investment Canada Act

This past October, Canadians elected a Liberal-majority federal government to replace the almost decade-long rule of the Conservative Party. Generally, we believe that foreign investors can expect “business as usual” under the new Liberal government. Indeed, the new government has emphasized its commitment to continued foreign investment. However, the new government has also emphasized transparent decision-making and noted that investment by non-Canadians must occur in a manner “that respects and defends Canadian interests”. In light of these policy goals, the Liberal government may well propose incremental reforms to the Investment Canada Act (ICA) or to the manner in which it is administered in the next year.

Such reforms could include providing more clarity to investors about the test for approval under the ICA. Currently, where applicable thresholds under the ICA are exceeded, a foreign investor must establish that its proposed acquisition of a Canadian business is likely to be of “net benefit” to Canada in order to obtain ministerial approval for the transaction to proceed. This “net benefit” test has been the subject of criticism on the basis that it is an uncertain standard potentially subject to the whims of the government. The new government has recognized that the net benefit test needs to be clarified to provide more certainty to foreign investors and to Canadians about the circumstances in which investments will be approved under the ICA. Prime Minister Trudeau has specifically commented that foreign investors need clearer rules around takeovers and that “decisions on a political basis rather [than] on a level of clarity [account for] why quite frankly [Canada is] seeing global investment hesitant to engage.”

Further, given the Liberal government’s policy agenda, its sensitivity to regional interests and Canada’s middle class, and its commitment to increased transparency and consultation, we expect that increased focus will be placed on employment, climate, regional economic growth and innovation issues during the “net benefit” review process. This may result in more stringent undertakings to the government in these areas being required in order to obtain “net benefit” approval.

In addition to the above, we also note that, if implemented, the Trans-Pacific Partnership (TPP) would increase the thresholds for “net benefit” reviews under the ICA applicable to most acquisitions of Canadian businesses by investors from TPP-member countries to $1.5 billion in “enterprise value” of the Canadian business’s assets. (Currently, the review threshold is $600 million in enterprise value of the Canadian business’s assets. Lower thresholds apply, and will continue to apply, to acquisitions by state-owned enterprises and acquisitions of “cultural businesses”.) However, the implementation of these higher thresholds depends upon ratification of the broader TPP, which is highly uncertain and subject to significant public debate.

  1. Innovation and the digital economy

As the Canadian digital economy continues to develop, we expect it and other innovative industries to be increasing areas of focus for the Competition Bureau in 2016 and in the years ahead. The Commissioner of Competition recently commented that “technological innovation is the main driver of economic growth” and “while…market inefficiencies…will continue to be the primary area of inquiry for the Bureau in most industries, an argument can be made that the impact to innovation, whether positive or negative, should be the predominant concern in some industries.” Indeed, signs of this focus are already evident. In late 2015, the Competition Bureau released a white paper calling on regulators to modernize taxi industry regulations in light of the explosive growth of digital ride sharing services, such as Uber. Additionally, the Bureau also recently completed a review of the broadcasting agreement between Rogers and the National Hockey League and has recently taken enforcement action against Bell Canada in relation to online reviews.

Similarly, the importance of innovation and the digital economy has been echoed by the new government, which has recognized that innovation and new technologies will create jobs and growth for the Canadian economy. In particular, in his mandate letter to the Minister of Innovation, Science and Economic Development, the Prime Minister identified the following as some of the top initiatives for the digital economy:  (i) increasing high-speed broadband coverage and work to support competition, choice and availability of such services; (ii) fostering a strong investment environment for telecommunications services to keep Canada at the leading edge of the digital economy; and (iii) reviewing existing measures to protect Canadians and Canada’s critical infrastructure from cyberthreats. These initiatives will undoubtedly be on the Commissioner of Competition’s mind as he sets his priorities for 2016.

  1. Does the Competition Bureau need formal powers to conduct sector studies?

The Competition Bureau has renewed its focus on advocacy efforts under its current Commissioner, John Pecman, and this focus is likely to continue in 2016. Specifically, the Bureau has identified sector or market studies as a key tool to inform policy makers about unnecessary obstacles to competition and to assist in the development of solutions to apparent competitiveness issues.

In recent years, the Bureau has published market studies looking at self-regulated professions (e.g., accountants and lawyers), the generic drug sector and the beer industries in Ontario and Quebec. The outcomes of these studies varied from motivating direct government action to persuading other stakeholders to voluntarily modify certain practices. The Bureau believes that these studies have also provided it with insights to make better enforcement decisions in the sectors studied.

However, there has been criticism that the Bureau does not have the jurisdiction under the Competition Act to carry out these market studies. Further, even if the Bureau undertakes such initiatives, it must rely on information voluntarily provided by market participants in conducting its studies. Unlike Canada, several jurisdictions, including the United States, Europe, Mexico and the United Kingdom, have formal authority to engage in such studies and compel the production of information from industry participants.

The Bureau may seek to address these issues by asking for amendments to the Competition Act that would provide it with formal powers (similar to those granted to regulators in other jurisdictions) to conduct market studies. While the government has not commented on the possibility of introducing any such amendments, we expect it to remain a high priority of the Commissioner in 2016. At a minimum, we expect the Bureau to continue its focus on market studies using the tools and resources currently available to it. In fact, the Bureau has stated that it intends to complete at least two market studies every year in regulated sectors that are of particular importance to the Canadian economy.

  1. Testing the Federal Court of Appeal’s abuse of dominance principle

In our last annual forecast we discussed the potential impact of the Federal Court of Appeal’s decision in the Commissioner of Competition’s abuse of dominance litigation against the Toronto Real Estate Board (TREB), which arguably expanded the reach of the Competition Act’s abuse of dominance provisions to include conduct that affects a market in which the allegedly dominant entity does not itself compete. In the case at issue, the Commissioner alleged that TREB, a trade association comprising most of the Realtors® in the Greater Toronto Area, controls, and is abusing a dominant position in, the residential real estate brokerage services market even though TREB does not itself compete in that market. Specifically, the Commissioner alleged that a TREB rule restricting its members from posting certain historical data on virtual office websites substantially lessens or prevents competition in the market for residential real estate brokerage services.

The Supreme Court of Canada denied TREB’s application seeking leave to appeal in July 2014, and the case was sent back to the Competition Tribunal for reconsideration. (See our discussions of the case following the Federal Court of Appeal and Supreme Court decisions.) In late 2015, the Tribunal reheard the case, and its decision is expected to be released in early 2016.

The Tribunal’s forthcoming decision will be significant as it will be the first to consider the abuse of dominance provisions in light of the Federal Court of Appeal’s decision and will set the stage for future enforcement in the abuse of dominance arena. Dominant companies and trade associations will be well-advised to consider their conduct in light of this upcoming decision.

  1. Competition Bureau decision-making in 2016: Time for reassessment?

In recent years, the Competition Bureau has suffered a number of significant defeats, including two major criminal cases in 2015.

Chocolate price-fixing

In 2007, the Competition Bureau initiated an investigation into alleged price-fixing by Canadian manufacturers of chocolate, including executing search warrants on a number of manufacturers. The matter came to the attention of the Bureau after Cadbury, one of Canada’s largest chocolate manufacturers, provided details of the alleged conspiracy under the Bureau’s Immunity Program. Following a six-year investigation, price-fixing charges were brought in 2013 against a number of manufacturers and certain of their executives, and one wholesaler. Shortly thereafter, one manufacturer, Hershey, pleaded guilty and agreed to pay a fine of $4 million. However, prior to commencement of the trial against the remaining accused parties, in late 2015, the Crown stayed proceedings, effectively terminating the case. While the Crown did not provide reasons for the stay of proceedings, it can be reasonably inferred that the Crown considered there to be no reasonable prospect of conviction.

Bid-rigging of IT service contracts

In 2006, the Competition Bureau initiated a criminal inquiry into bid-rigging allegations against 14 individuals and seven companies relating to IT service contracts with the Canadian federal government. Like the Bureau’s chocolate industry investigation, this investigation also arose out of an application under the Bureau’s Immunity Program.

Following an almost 10-year-long investigation (which included a number of guilty pleas), a seven-month trial and the expenditure of significant resources (likely in excess of $5 million), the six individuals and three companies that elected to be tried by a jury were acquitted of all 60 bid-rigging charges in April 2015. Following the jury’s not-guilty verdicts, the Commissioner of Competition stated that “the Bureau and the Public Prosecution Service of Canada will take the time necessary to consider next steps, including whether to appeal the verdicts”; ultimately they decided not to appeal.

Given these recent high-profile losses, the Bureau may revisit its investigatory and decision-making processes in such high-profile matters, including its immunity and leniency programs, especially given the high costs to companies and taxpayers of lengthy and ultimately unsuccessful investigations. However, despite the outcomes of these recent cases, the Commissioner has stated his belief that the Bureau’s immunity and leniency policies are still effective programs.

  1. Contested mergers and hold separate orders

In April 2015, the Commissioner of Competition filed an application challenging a proposed merger between two major gasoline retailers, Parkland Fuel Corp. and Pioneer Energy, seeking to prohibit acquisition of (or require the post-closing divestiture of) retail gas stations and related supply agreements in 14 local markets (representing less than 10% of the overall transaction). The Commissioner also brought an application under section 104 of the Competition Act seeking an injunction preventing the merging parties from implementing the transaction in those 14 markets pending the outcome of the Commissioner’s challenge. This marked the first time that the Competition Tribunal considered a contested case in respect of an injunction that would be in place pending a full hearing on a contested merger.

In May 2015, the Tribunal issued its injunction decision, ordering Parkland and Pioneer to hold separate retail gas stations and supply agreements in six of the 14 markets, pending resolution of the Commissioner’s challenge by the Tribunal. Notably, the Tribunal confirmed that the test for an interim injunction under section 104 is based on the standard for injunctions used in courts. Specifically, the Commissioner must (i) demonstrate there is a serious issue to be tried; (ii) provide “clear and non-speculative” evidence that irreparable harm will result if the injunction is not granted; and (iii) establish that the balance of convenience supports the granting of relief. The Bureau failed to obtain injunctions in the eight other markets because it did not provide sufficient “non-speculative” evidence demonstrating irreparable harm:  i.e., that consumers in those markets would face higher prices were the stations to consolidate. (The outcome of the full case is still pending and the hearing has been scheduled for May 2016.)

The decision, including the legal test set by the Tribunal, illustrates the need for both the Competition Bureau and merging parties to develop ample economic evidence during the course of merger planning and review where the merger may raise significant competition issues. Going forward, we expect that the Bureau will increase its efforts to obtain such evidence from merging parties during the course of its reviews of transactions that it is considering challenging. Further, we expect that section 104 applications will continue to be used as a tool by the Bureau in future contested merger proceedings.

  1. Will the Price Transparency Act be passed under the new government?

The previous Canadian government identified what it viewed as an unjustified gap between American and Canadian prices on certain products, in particular where companies with market power charged higher prices in Canada than in the United States and where those higher prices were not reflective of “legitimate” higher costs of operating in Canada. The previous government attempted to address this concern through Bill C‑49, the Price Transparency Act. The Bill would have amended the Competition Act to authorize the Commissioner of Competition to investigate geographic price discrimination and report publicly on his findings, thus shedding light on any unjustified differences. The amendments would have effectively granted the Commissioner authority to compel companies to provide documents to justify their pricing. However, the Commissioner would not have been given authority to prohibit or impose penalties for price differentials.

Bill C‑49 met with considerable opposition, based on concerns that analyzing cross-border price differences would require in-depth investigations that would be impractical, costly and disruptive, and that the Competition Bureau is not qualified to assume such a regulatory role and make complex determinations relating to differentials in price.

Although the new Liberal government has yet to comment on the prospect of resuscitating the Price Transparency Act, given the current weak Canadian dollar, coupled with the significant costs and burdens that could result from such a law, it is unlikely that cross-border price discrimination will be a priority for the government in 2016.

  1. Technical amendments to the Competition Act

Agreements and transactions between “affiliates” under common control are, for good reason, exempt from a number of provisions of the Competition Act, including the conspiracy, price maintenance and merger notification provisions. It is generally accepted that agreements or transactions between entities under common control should not be subject to prohibitions under the Competition Act because such entities are not expected to compete with one another. Rather, the expectation is that they will coordinate their activities as efficiently as possible.

However, although the current definition of affiliate under the Competition Act addresses corporations under common control, it does not, for example, apply at all to trusts and does not apply fully to partnerships. Although Competition Bureau guidelines state that the Bureau will consider whether other types of entities are under common control in deciding whether to refer an agreement for prosecution, the guidelines are not binding on the Bureau or a court. Further, such guidelines are inapplicable to a determination of whether a merger notification is required under the Competition Act.

As part of Bill C-49, the prior Conservative government proposed a number of helpful technical amendments to the Competition Act, including modifications to the definition of “affiliate”, in order to promote consistency between how corporate and non-corporate entities are treated under the Competition Act. In the coming year, we hope to see the Liberal government move forward on these non-controversial technical amendments to help clarify the application of the Competition Act.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

CHINESE UPDATE – Developments on Foreign Investment Administration – On the Catalogue of Industries for Guiding Foreign Investment (2014 Revision)

Editors’ Note:  Contributed by Adam Li (Li, Qi), a partner at Jun He and a member of XBMA’s Legal Roundtable. Mr. Li is a leading expert in international M&A, capital market and international financial transactions involving Chinese companies. He has broad experience with VIEs and other structures for foreign investment in China.  This article is authored by Jun He partner Catherine Miao and associate Vivian Pan.  Ms. Miao’s practice area includes finance, FDI, enterprise restructuring, M&A, and overseas investment by domestic enterprises.



  • Foreign investment projects in China are categorized into encouraged, permitted, restricted and prohibited projects.  The 2014 revisions to the Catalogue of Industries for Guiding Foreign Investment were made with the intention to substantially reduce the restricted projects, to loosen the restrictions on foreign shareholding percentage, and to primarily promote the opening-up of the manufacturing industry and service industry.
  • In general, the 2014 Catalogue loosened the restrictions on the access by foreign investment in the fields of manufacturing, service industry and so on.  Restrictions on forms of foreign investment and foreign shareholding percentage were largely loosened, which is reflected by the reduction of the number of items requiring the form of “equity/cooperative joint venture” and also by the reduction of the number of items requiring “controlling by the Chinese party”.
  • At the same time, the examination and approval of certain foreign investment projects became stricter.  For example, “higher education institutions (limited to equity/cooperative joint venture operations)” was moved from encouraged projects to restricted projects and “legal advisory service” was moved from the restricted projects to the prohibited projects (together with a change of the description to “advisory service on Chinese law matters”).
  • The pre-establishment national treatment with a negative list approach is widely adopted by other countries in the world in the administration of foreign investment.  The “national treatment” means giving foreign investors and their investments treatment no less favorable than that given to one’s own investors and their investments under the same conditions.  The negative list sets out the measures concerning access by foreign investment that are not in conformity with the pre-establishment national treatment obligation, and reflects the concept that “absence of legal prohibition means freedom.”  We believe that in the future the 2014 Catalogue will definitely become an important basis for the formulation of the negative list.


The full article can be read here: Developments on Foreign Investment Administration – On the Catalogue of Industries for Guiding Foreign Investment (2014 Revision)

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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