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Navigating Disruption: U.S. – China Trade Wars

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David Norman

Partner

Hong Kong

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White William E
William E. White

Partner

Washington, D.C.

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26 November 2018

2018 marks Allen & Overy’s 30th year in Hong Kong. In the last 30 years, we have helped our clients successfully navigate many challenging periods but the continuing and accelerating disruption that characterises the present era will require new solutions. Nationalism, trade wars, new technologies and business models, cyber security threats, evolving regulations – the list of challenges organisations must address continues to grow. Our Navigating Disruption series is designed to help our clients manage, adapt to, and, where possible, capitalise on these developments. 

The first event in our Navigating Disruption series was led by partner David Norman with Jane Jiang, litigation partner in our Shanghai office, William E. White, litigation partner in our Washington D.C. office as well as Dane Chamorro, senior partner at risk consultancy Control Risks, as panellists. The panel discussed current developments and the impact to companies in China – below are some of the key points raised.

Impact on China will be limited

Jiang_Jane-0295632_300.jpgThere are some sectors suffering the short-term effects of the U.S. - China trade war such as the U.S. auto industry as suggested by their lowered profit forecasts but also Chinese tech companies are seeing an effect as illustrated by Huawei’s blocked U.S. investment. However there are sectors that have not seen significant impact. With the opening up of China’s financial services sector, particularly in the securities, futures, fund management and life insurance sector, we are seeing foreign financial institutions taking this opportunity keenly and looking to increase their capital commitment and their resources in China. Longer term, I believe that the sheer size of China’s market will continue to allure foreign investors, despite U.S.- China trade tension.”
Jane Jiang, Partner, Allen & Overy, Shanghai

 
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This has been a wakeup call to manufacturers in China. “While companies manufacturing in China won’t leave China but, when it comes to adding production capacity they won’t add it in China as was previously done; now they are diversifying manufacturing to countries in Southeast Asia and South Asia, in part due to cost and opportunity but also as a result of trade tensions.”

- Dane Chamorro, Senior Partner, Control Risks

 

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The expansion of CFIUS’s operational mandate, which will come into full effect in the next 12 months, means cross-border deal makers and transaction advisers should make certain that they understand CFIUS’ expanded authority and how it might impact contemplated transactions. We are seeing more deals being analysed along with increased staffing but not a lot of transparency in that process. If this trade war continues, we can expect this approach will be further expanded.”
William E. White, Partner, Allen & Overy, Washington D.C.
 

If you are investing in the U.S. what are you giving to get? 

“To ease approval of M&A deals and in the transactional world of President Trump investors need to put a lot of thought into what they are bringing to the country or state they are investing it, be it jobs or environmental support. What value will your investment bring to the recipient country?”
Dane Chamorro, Senior Partner, Control Risks
 
Chinese investors are thinking ahead and planning for long lasting trade tensions and considering substitute markets. While in the past they would go to the U.S. for technology, now they are identifying opportunities in Japan and Korea for technology in the semi-conductor and electronics industry and Europe for industrial and robotics technology. The U.S. will only be an option if it offers unique advanced opportunities such as in the area of Artificial Intelligence.” 
Jane Jiang, Partner, Allen & Overy, Shanghai