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Chinas Performance on the Financial Balance Beam Overview of Outbound Investment Regulations MIREIA PAULO A&Z LAW FIRM Director of the European-American Market and Overseas Investment Projects 2018-01-25 Introduction of Speaker Mireia Paulo Director of the European-American Market and Overseas Investment Projects at A&Z Law Firm. Mireia Paulo has over ten years work experience in more than seven different countries working on a broad variety of industries including, but not limited to: identifying opportunities and assessing investment projects; evaluating business needs to improve performance; leading project development and implementation throughout entire lifecycles; and coordinating governmental relationships. She is often invited to speak at tailor training for companies and governmental agencies, and to lecture courses for universities. She is currently undertaking PhD at Ruhr-Universitt Bochum, holds a Master Degree from the College of Europe, and possess three

different bachelors. Overview of Outbound Investment Regulations 2 CONTENTS Background Latest Policies Case Study Overview of Outbound Investment Regulations Outlook 3 1

Background Overview of Outbound Investment Regulations 4 Background The updated data Source: OECD Overview of Outbound Investment Regulations 5 Background The updated data: 2018.01.17 Annual Amount of the Outbound Investment Million US Dollars

200,000 170,110 0 29.4% 160,000 120,080 118,125 2015; 1 0120,000 80,000 40,000 2015 2016

0 2017 Irrational outbound investment has been effectively contained. There was no new investment projects in the real estate, entertainment and sports clubs area (2017). The investment cooperation with the countries along the Belt

and Road was steadily progressing (2017). Source: Data Center of MOFCOM Overview of Outbound Investment Regulations 6 Background The updated data Amount and Number of the M&A Transactions of China in the United States and Europe (from 2012 12.27 2017 ) Source: Mergermarket Overview of Outbound Investment Regulations Up to: 12.27 7

Background The updated data M&A Transactions of China in the United Sates and Europe Source: Mergermarket Overview of Outbound Investment Regulations Up to: 12.27 8 Background Why does China apply capital outflow restrictions? Limiting the drawdown of Chinas foreign currency reserve Financial stability

Keeping the RMB/USD exchange rate relatively stable Overview of Outbound Investment Regulations 9 2 Latest Policies Overview of Outbound Investment Regulations 10 Latest Policies Outbound Investment - Administrative Measures (NDRC) Administrative Measures for the Outbound

Investment of Enterprises Effective Date: 2018-03-01 Promulgator: (No. 11 NDRC Order) Overview of Outbound Investment Regulations 11 Latest Policies The situations-four main supervision departments National Development and Reform Commission (NDRC) State Administration of Foreign Exchange (SAFE) Ministry of Commerce of the PRC (MOFCOM) Peoples Bank of China

(PBOC) Overview of Outbound Investment Regulations 12 Latest Policies Outbound InvestmentMajor Changes of the Administrative Measures Expand and clarify the scope of regulation A. Supervision target shall be the enterprises, including legal person and unincorporated enterprises, such as partnership, financial enterprise, and nonfinancial enterprise. B. Supervision investment activity which conducted by the abroad enterprises controlled by natural person and domestic enterprise. Strengthen in-process and ex-post regulatory process Supervise and inspect outbound investment through online monitoring, summoning investors to have a talk, making inquiries

via correspondence, effecting rectification via random checks. 1 Optimize approval and filing processes 2 3 A. No need of sending information report to the NDRC and obtaining confirmation letter before the conduction of the investment which the amount of investment made by the Chinese investor amounts to USD300 million or above (abolish the road pass). B. Obtaining or filing the approval shall be the implementation condition instead of a must being done before signing the binding contract. C. Cancel the transmit procedure, local enterprises shall apply with the NDRC directly if their investment project fall into certain category.

4 Add the duties of the NDRC: providing macro guidance and comprehensive service Include provide the information services, form a fair environment, safeguard the legitimate rights and benefits of Chinese enterprises. Overview of Outbound Investment Regulations 13 Latest Policies Outbound Investment Circular (General Office of the State Council) Circular of the General Office of the State Council on Forwarding the Guiding Opinions of the National Development and Reform Commission, the Ministry

of Commerce, the People's Bank of China and the Ministry of Foreign Affairs on Further Guiding and Regulating the Outbound Investment Direction Effective Date: 2017-08-04 Promulgator: General Office of the State Council Overview of Outbound Investment Regulations 14 Latest Policies Outbound Investment: Encouraged Categories [Art. 3] Infrastructure that is favorable to the Belt and Road Initiative and the interconnection of infrastructure in neighboring countries.

Exploration and development of overseas energy resources, such as oil gas and minerals. Expand collaboration with overseas parties in agriculture: make investment in and have cooperation on the agriculture, forestry, animal husbandry, side occupation, fishery and other sectors for mutual benefits. Investment that is able to drive the output of advanced production capacities, superior-quality equipment and technological standards. High and new technologies and the advanced manufacturing. Encourage the establishment of research and development centers abroad. Outbound investment in commerce, trade, culture, logistics and other service areas,

and support eligible financial institutions to set up branches and build up the service network. Overview of Outbound Investment Regulations 15 Latest Policies Outbound Investment: Restricted Categories [Art. 4] ! 1. Investment in any sensitive country or region 4. Projects made through backward production equipment that does not meet technological standards formulated by an investment destination. 5. Projects do not conform to standards in respect of environmental protection, energy consumption, and security formulated by an investment destination.

Restrict-ed ! 2. Sectors as the real estate, hospitality, film cinemas, entertainment or sports clubs. ! 3. Private equity funds or investment platforms established outside the territory of China for non-concrete business projects Overview of Outbound Investment Regulations 16 Latest Policies Outbound Investment: Prohibited Categories [Art. 5] 1. Projects involving the output of core technologies and products applied in the military industry that has not been approved by the State. 4. Projects prohibited under

any international treaty concluded or acceded by China. 5. Projects harming national interests or national security. Prohibit-ed 2. Projects applying any technology, technique or product, of which the export is banned in China. 3. Projects investing in the gambling and pornography industries. Overview of Outbound Investment Regulations 17 Latest Policies Different Measures [Art. 6] Encouraged Categories

The quality of services shall be further improved in aspect of taxation, foreign exchange, insurance, customs, and information. Restricted Categories Guide enterprises to certain projects with prudence and provide them with necessary guidance and instructions. Prohibited Categories Impose strict control over prohibited outbound investment projects. Overview of Outbound Investment Regulations 18 Latest Policies

Chinas attitude towards outbound investment The trend of activating domestic market and avoiding capital flight. The wish to avoid sensitive field and reduce potential risks to keep financial stability. Overview of Outbound Investment Regulations 19 Latest Policies Outbound Investment Regulations (NDRC, MOFCOM, PBOC, MFA, ACFIC) Regulations on Outbound Investment and Business Activities

of Private Effective Date: 2017-12-06 Enterprises Promulgator: NDRC, MOFCOM, MFA, ACFIC PBOC, Overview of Outbound Investment Regulations 20 Latest Policies Outbound Investment Highlights of the Regulations Perfecting the Operating Management System and Strengthening Outbound Risk Prevention and Control 1

Perfecting rules and regulations on outbound investment management; strengthening financial supervision; strengthening talent team construction; establishing and improving an emergency disposal mechanism. Legal, Compliant and Honest Operation 2 Going through domestic declaration procedures; protecting intellectual property rights; protecting consumers' rights and interests; avoiding involvement in other countries' internal affairs. 3 Paying Attention Responsibility and

Resource Protection to Social Environmental Strengthening localized operation; perfecting information disclosure; assessing environmental impact. 21 Overview of Outbound Investment Regulations 3 Case Study Overview of Outbound Investment Regulations 22 Case Study

Chinas Wanda intents to buy DCP for $1bn but failed Chinas Wanda buys DCP for $1bn Overview of Outbound Investment Regulations 23 Case Study Chinas Wanda intents to buy DCP for $1bn but failed Fact 1 Chinese property and investment firm Dalian Wanda Group is entering the TV industry after agreeing to acquire US-based Dick Clark Productions (DCP) for around US$1bn. Fact 2 This deal faces some hurdles and finally it is officially terminated by the owner of DCP.

Facts 3 Eldridge Industries filed a suit in Court of Delaware to get approx. $25 million as termination fee amount which promised under the deal. Overview of Outbound Investment Regulations 24 Case Study Chinas Wanda intents to buy DCP for $1bn but failed Overview of Outbound Investment Regulations 25 Case Study Other typical cases 1. An enterprise located within the territory of Mainland

China plans to set up a casino overseas 2. In another scenario, the enterprise in case 1 makes such investment via a overseas enterprise under its control. Overview of Outbound Investment Regulations 26 Case Study Other typical cases Relative A brought $50,000 $50, 000 Relative B brought $50,000 $50,00 0

Friend C brought $50,000 Friend D brought $50,000 $50,000 Offshore account of F Ant Trade 0 $50,00 000 , 0 5 $ Friend E brought $50,000

Overview of Outbound Investment Regulations 27 Case Study SGCC gains controlling stake in Brazil's CPFL--Successful SGCC gains controlling stake in Brazil's CPFL Overview of Outbound Investment Regulations 28 Case Study SGCC gains controlling stake in Brazil's CPFL--Successful Fact 1 The State Grid Corporation of China announced on 24 January 2017 that it has concluded a deal for a 54.6% stake in Brazil's largest power distributor CPFL Energia SA.

Fact 2 The total value of the deal was about 14.19 billion reais (about 4.49 billion USD) [CPFL Energia statement]. Facts 3 The deal boost the Chinese's presence in Brazil's market, expanding its businesses to power transmission, distribution, new energy power generation and electricity sales. Overview of Outbound Investment Regulations 29 Case Study SGCC gains controlling stake in Brazil's CPFL--Successful ? Reasons for success? ?

? Overview of Outbound Investment Regulations 30 Case Study Other typical cases Mr. R Invested with CFs own funds accumulated through business, without any loan. Enterprise HC (Hong Kong) Sole shareholder Enterprise

CF (Mainland China) Procedures: 1. Draft and sign the LOI/binding contract; 2. Obtain the approval/filing from the competent NDRC; 3. Conduct archive filing and verification with MOFCOM; 4. Register with the bank under the guidance of SAFE; 5. Conduct the remittance of funds. Overview of Outbound Investment Regulations 31 Case Study Other matters that need attention MoneyGram And Ant Financial Announce

Termination of Merger Agreement Overview of Outbound Investment Regulations 32 4 Outlook Overview of Outbound Investment Regulations 33 Outlook It is foreseen that: Uncertainty 1. Outbound investment will be encouraged, but the supervision target will be expanded;

Foreign exchange Duration 2. Restrictions will be relaxed; and 3. Procedure will be simplified. As an investor, you need to: Encouraged or not Outlook Cautious Make sure that your company/industry/partner falls into the encouraged category; Check whether your project needs to be approved or filed. It takes long time and has uncertainty if it needs approval; Pay attention to foreign exchange and RMB

conversions; Consult with professionals and relevant departments. Overview of Outbound Investment Regulations 34 Outlook Considering that the state-owned capitals are going out and participating in international large scale projects, it could anticipate that the state-owned capitals will play an important role in the global market in the near future. However, there are no laws, regulations or rules implemented or published to specially regulate the outbound investments and business activities of the state-owned enterprises.

Important attention should be paid on the upcoming publications of relevant regulations. Overview of Outbound Investment Regulations 35 ABOUT US A&Z Law Firm Welcome to visit our website: www.a-zlf.com.cn Wechat Official Account: ligeHello Shanghai (HQ) 6 Floor, Okura Garden Hotel, 58 South Maoming Road, Shanghai, 200020 P.R.China Tel.: +86-21-5466-5477 Fax: +86-21-5466-5977

Beijing 17 Floor, Tower D1, DRC Diplomatic Office Building, 19 East Dongfang Road, Chaoyang District, Beijing 100016 P.R.China Tel.:+86-10-8531-7348 Fax: +86-10-8531-7377 Dalian Room 2104, Senmao Building, 147 Zhongshan Road, Xigang District, Dalian, Liaoning Province116011 P.R.China Tel.:+86-411-8367-1183 Fax: +86-411-8367-1283 Wuhan Room N9, 22 Floor, New World Center 634 Jiefang Avenue, Wuhan, 430073 P.R.China Tel: +86-27-8342-6645 Fax: +86-27-8342-6645

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