Frédéric Feyten and Shaohui Zhang (Dentons):

Chinese M&A in the EU faces new challenges

Frédéric Feyten, Dentons’ Luxembourg managing partner, and Shaohui Zhang, head of the Dentons Europe China Desk, explain the challenges facing Chinese companies active in European M&A in a fast-changing regulatory and policy environment.

How has investment by Chinese groups in the EU evolved in recent years?


Chinese investment into the EU began to grow following the 2008 financial crisis, from €2 billion in 2009 to €35bn in 2016 – a 17-fold increase in just seven years. The growth is not only reflected by volume but also by value. In 2016 alone, acquisitions valued at over €2 billion included the purchase of 10.5% of the UK’s National Grid by CIC for more than €13bn; the €6.7bn investment by a Tencent-led consortium in Finnish gaming company Supercell; and Midea’s €4.4bn acquisition of German robotics company KUKA. Last year Chinese global

outbound M&A fell significantly, and it currently faces a range of challenges, notably Chinese government policy changes, the EU’s foreign direct investment screening project, and the impact of the US-China trade conflict.

The Chinese government has sought to regulate outbound FDI, publishing in

August 2017 Administrative Measures for Outbound Investment by Enterprises incorporating new capital controls, and cracking down on “irrational”

acquisitions abroad.

What developments are affecting Europe’s investment ties with China?


Europe is viewed more favourably than the US at the moment for Chinese foreign investment. You can clearly see this with the upcoming 2019 Asian Infrastructure Investment Bank meeting which will be held in Luxembourg in 2019. This demonstrates the excellent relationship and dialogue between Luxembourg and China. On the other hand, EU rules that affect Chinese M&A are changing, including increased scrutiny of FDI from third countries, including China, through a screening framework at the EU level. Other factors, especially ongoing tax initiatives such as BEPS and the Multilateral Instrument to curb treaty-shopping, also have a substantial impact on the structuring of Chinese investment in the EU. Policy-makers are also scrutinising the role in the market of China’s state-owned enterprises and the so-called uneven playing field for foreign investors there.

“Between China, Luxembourg and the EU, regulation of banking and finance is not always identical.”

What EU regulatory pitfalls exist for Chinese banks?

Chinese banks have selected Luxembourg for the competitive advantage it offers as an international financial centre and a member of the EU, eurozone and EEA, enabling them to conduct banking and financial activities across Europe through the EU passport. But between China, Luxembourg and the EU, regulation of banking and finance is not always identical. A typical misunderstanding involves the requirement for documents to be in at least

one of the three working languages of French, English and German, otherwise the institution is not compliant. Chinese banks should also constantly consider the impact of new EU regulatory rules, and the key differences between AML

and compliance rules in China and the EU. They need to know how and when to utilise instruments such as term B loans for leveraged buyout deals, syndicate

d loans, and even Schuldscheine.

There’s also the question of complying with the requirements and future considerations of the GDPR, which came into effect on May 25. It’s all about managing the risks and challenges facing Chinese investment in a rapidly evolving regulatory framework.

How is Dentons assisting Chinese clients in Europe?

Dentons is the world’s largest law firm with more than 9,000 lawyers in more than 170 locations across 75 countries. Since our combination with China’s Dacheng in 2015, we have actively been supporting Chinese investors in outbound projects across the globe. In Europe, we established the Dentons Europe China Desk in Luxembourg to advise Chinese companies investing in Luxembourg and the wider European market, as well as European companies expanding into China. This group has more than 60 members, of whom at least one-third speak Mandarin or Cantonese.