On June 11, AmCham China hosted “Managing US-China Trade Uncertainties II: Prospects of Chinese Investment to the US,” an event designed by AmCham China’s Outbound Investment Forum. The presentation and audience-interactive panel discussion was the second session to analyze and discuss the trade environment between the US and China in the context of the current political administrations at force. During the first installment of this event in May 2018, industry leaders gathered to discuss the current climate and its implications in the real estate sector. The second event, on Monday, focused on solutions to challenges brought up by policy, trade frictions, and other extenuating variables.
The afternoon’s event began with opening remarks and an introduction to the forum by Kenneth Zhou, a partner at WilmerHale. Each panelist spent 10 minutes speaking about the trade climate in terms of their area of expertise. Ethan Cramer-Flood, Associate Director at The Conference Board, introduced a few main points to set the stage in regard to the current trade dynamics. Cramer-Flood emphasized that though the Trump administration is accelerating and exacerbating tensions, they would have existed regardless of who was elected in 2016. This is due to the changing climate of trade on an international level. Advanced economies are evolving and adapting their approaches to trade with China, which ultimately impacts how the US will be able to deal with China moving forward.
Following Cramer-Flood’s introduction to the US-China trade dynamic, Zhou highlighted recent additions and changes to Chinese policy. In 2016, the Chinese government implemented a system by which to organize the permissibility of outbound investments. The terms “encouraged,” “restricted,” and, “prohibited” are used to classify possible investments. This allocation system allows the Chinese government to give support to certain types of transactions that are beneficial, such as in key industrial sectors. The Chinese government support encompasses natural resources, technology, and manufacturing (among others). At the same time, it has shed light on the types of foreign investments that China will not and currently does not support, such as the entertainment industry, professional sports teams, and real estate. The Chinese government wants to keep policies that minimize highly-leveraged private investments and re-emphasize the value of sectors that it already lends support to.
Complementing Zhou’s views on the relevant Chinese policies, Tim Stratford of Covington and Burling, LLP, noted important policies and actions taken by the United States on the trade front. Stratford mentioned Monday afternoon that the United States Treasury’s trade restrictions are far more important and heavy-hitting than tariffs. Trade restrictions on foreign investment in the United States do not serve to dissuade or cease foreign trade: they exist out of interest for national security. Stratford asserted that Chinese investors can and should seek investments in the United States, but should take care to understand the needs and concerns of the US government before taking action.
Outside of trade policy, investors may additionally worry about tax policy. Xin Wang of Deloitte Touche Tohmatsu Certified Public Accountants LLP Beijing Branch reviewed data concerning federal rates via TCJA tax cuts. In the US, policy surrounding these issues is changing quickly in such an unstable environment. In Wang’s view, for Chinese investors, it may be unwise to look to the US as a safe haven for intellectual property. Tolerance, patience, and understanding is required in order to make smart investments in the United States.
Following statements by experts in US and Chinese policies in the trade environment, Jane Zhang, President of DaoHe Consulting, shared her observations and prepped the presentation for an interactive panel. Zhang gave professional insight as to the process by which transactions should be made for global investments. She discussed the need for increasing the level of understanding and communication necessary in each stage of a transaction: planning, negotiating, and closing the deal. Understanding both the internal and external climates in which the transaction is taking place was a point emphasized by Zhang. Following her insight and expertise, she served as the moderator for a panel-style conversation between the distinguished speakers and the audience.
Panelists shared success factors used in outbound investments. Stratford and Zhou agreed that the key is preparation. Stratford coined the term “CFIUS due-diligence” to describe the process of doing relatively cheap preparations to prepare for dealing with CFIUS in outward investments. Navigating challenges before they arise can be an effective way to avoid wasting money, time, and resources. Zhou asserted that, if an investment is truly successful, the local community will thrive as the company thrives. Deep understanding of local communities is important for investors. Zhou further added that among hurdles, challenges, and issues, there is still an abundance of opportunity for bilateral investment and trade.
Overall conclusions of the panel-style event included an emphasis on planning, understanding, and collaborating. Investors must conduct CFIUS due-diligence to save money, resources, and time when navigating possible challenges. An understanding of the current trade climate’s constantly changing policy, local government, federal government, and environment is necessary for investors who are working in foreign environments. Collaboration with professionals from both the Chinese and US sides of things ensures that the planning stage, depth of understanding, and process of transactions are all carried out such that there are no losers.