Frequently Asked Questions

 

Question: Why are more and more mainland corporate investors seeking overseas investment and partnership opportunities?

Answer: The “going out” strategy of mainland enterprises is a policy initiative of the Central Government in response to the changing global business environment. With many overseas markets remaining weak, exports from China have been constrained. The problem has been compounded by the strength/fluctuation of the Renminbi exchange rate and rising domestic costs of land and labour. Accordingly, under its 12th Five-Year Plan, the Chinese Government encouraged mainland enterprises to transform and upgrade themselves, thereby enhancing their competitiveness in both domestic and international markets, by “going out” to seek investment opportunities in advanced technologies, intellectual property and brands. The Third Plenary Session of the 18th Central Committee of the Communist Party of China held in November 2013 further advocated mainland enterprises to explore “going out” and invest in greenfield projects, joint investment projects, and conducting mergers and acquisitions.

Through “going out” they hope to further develop the overseas market and to solicit sales and technology partners overseas, while by “bringing in” the advantages of their partners, such as brands and technology, to further develop the booming domestic market on the mainland. As a result, the “going out” of Chinese businesses is not limited to mergers and acquisitions or the sourcing of raw materials/key parts and components from overseas, but also undertakings of joint venture technology projects with overseas businesses and launching co-operative projects with foreign brands.

 

Question: What are the markets, sectors and industries that these investors are focusing on?

Answer: Traditionally the energy and mining sectors were the major investment areas of Chinese investors. But the high-tech and high-end manufacturing sectors, brands and retail networks, as well as other value-added services, have increasingly become more important for such outbound investment. Indeed, the scope of China’s outward investment is extensive at the moment. Sectors with more than US$10 billion in investment stock now include leasing and business services, finance, mining, wholesale and retail trade, manufacturing, transport/storage/postal services and construction.

While the footprints of Chinese investors can be found across the world, the mature economies of Europe, North America, Japan and Australasia remain their priority markets given their proliferation of advanced industries as well as other opportunities that are of high priorities to the Chinese investors, including high technology sectors.

 

Question: What partnership formats will these investors consider?

Answer: Chinese investors are now “going out” to solicit business partnership in different formats, such as greenfield investments, joint investment ventures, mergers and acquisitions, equity investments, minority share ownership, technology licensing arrangements as well as technological co-operation with overseas institutions in R&D, production and environmental protection.

 

Question: Why is Hong Kong the preferred partner of mainland enterprises for managing their overseas investments?

Answer: Hong Kong is the key investment route for mainland’s outward direct investment.2014, Hong Kong managed 57.6% of the mainland’s direct investment outflow, amounting to US$70.9 billion. It accounted for 57.8% of the end-2014 outward direct investment stock, the cumulative value of which stood at US$509.9 billion.

Hong Kong offers numerous advantages in managing business risks. The legal system is independent from that of the mainland and adheres to the rule of law and the common law system; intellectual property protection is also strongly enforced.

Most Chinese investors regard the free flow of capital as one of the biggest advantages of Hong Kong, and “macro” factors like Hong Kong’s wealth of global communications resources and world-class professional services are also reasons that attract mainland enterprises in “going out” through Hong Kong.

Hong Kong’s liberal trade and investment regime is universally recognised. Moreover, Hong Kong can meet the practical needs of mainland enterprises in various aspects in “going out”, such as: (1) by acting as a technology trading platform that helps enterprises develop the mainland and overseas markets simultaneously; (2) with availability of professional services providers who are capable of understanding the details of Sino-foreign co-operation projects and can offer practical legal advice and financial arrangements; and (3) by providing mainland enterprises with extensive overseas network that serves as a springboard for them to invest overseas.

Hong Kong service intermediaries offer a full range of professional services in the deal process, from the identification of deals all the way to transaction completion and post-transaction management. Such services include consultancy, due diligence, risk management, business valuation, financial advisory, tax advisory, legal service, IP protection, human resources, brand integration and marketing.

 

Question: How can Hong Kong’s financial and professional services companies facilitate successful cross-border investment partnerships with mainland enterprises? And how Hong Kong can satisfy the legal and business requirements of those companies looking to enter into such partnerships?

Answer: Hong Kong service providers have been acting on the behalf of mainland enterprises for many years in matters of trade and investment in both Hong Kong and overseas markets. In addition, Hong Kong provides mainland enterprises with other professional services, including brand strategy, due diligence, sustainable management risk assessment, licensing arrangements, and international certification and testing. With the mainland enterprises accelerating the pace of “going out” and “bringing in”, Hong Kong service providers are in the position to support mainland’s enterprises in the process.

For example, Hong Kong can provide corporate finance services to help mainland enterprises obtain lower cost of funds, as well as optimise a combination of funding sources to promote enterprise “going out” to invest overseas.

Hong Kong service providers offer effective tax planning solutions, improve financial and tax arrangements for enterprise “going out” and cut down unnecessary financial burdens.

Hong Kong can facilitate contact with well-known foreign brands for cross-border brand co-operation, and introduce high-end product design to accelerate the development of China and overseas markets.

As well as providing technical support, Hong Kong’s technology platform offers risk assessment, financing and other services to technology projects, and can effectively assist enterprises in finding the necessary technology to compete in the global marketplace.