When a business determines to expand its operations into a foreign country, it will generally confront preliminary questions around the choice of an appropriate deal structure. What structure should be adopted in consummating the desired transaction? Should the business undertake an outright acquisition in the foreign country, either through an asset purchase or majority stock purchase? Should the business partner strategically with a local player? Should the business instead ‘go it alone’ by pursuing an organic strategy of direct investment? These factors, among others, implicate key deal structure considerations. And they are especially salient to corporate strategy underpinning M&A dealmaking opportunities where China is the nexus.
China’s financial and capital markets are singularly unique among major industrialised economies. Uniqueness begets complexity, and China’s M&A landscape is no exception to this maxim. US and European businesses that transact, operate or invest in China face ever-present complexity in navigating the country’s highly nuanced M&A market. That complexity particularly manifests itself in strategic decision-making around the evaluation and execution of optimal deal structures. Likewise, Chinese acquirers that engage in outbound M&A to the United States or Europe often wrestle with similar deal structure considerations. As a consequence, China-focused M&A – whether outbound or inbound – generally necessitates bespoke solutions by senior management teams and corporate boards to transact successfully and yield value creation for key stakeholders.
Corporate transactions in China assume a variety of structures. Arguably the most common have been stand-alone acquisitions and joint ventures (JVs). Direct investments – generally referred to as ‘greenfield investments’ – are also undertaken with some frequency. Taken together, these structures largely represent the bulk of cross-border M&A activity with a nexus to China.
This chapter discusses:
- the aforementioned deal structures as they relate to the China market;
- considerations impacting both acquisitions and JVs with a nexus to China; and
- recent commercial regulatory developments impacting M&A deal considerations in China.
Acquisitions constitute a principal transaction structure for US and European businesses engaged in dealmaking in China. A common rationale for consummating an acquisition in China is a company’s desire to capitalise on attractive commercial opportunities for new value creation and market share expansion in the country. Many US and European businesses generally also seek cost efficiencies and the labour productivity gains generally afforded by China’s economy. Foreign car companies, for example, continue to take advantage of efficiencies associated with China’s labour market and supply chains, notwithstanding the growing prominence of other low-cost markets in South East Asia and the Indo-Pacific, more generally. An additional motivating factor among US and European players for executing China-focused M&A transactions is access to the enormous Chinese consumer base – the largest in the world – and substantial commercial opportunities inherent in the country’s burgeoning middle class, which now exceeds 380 million people.
A driving motivation for Chinese players to engage in acquisitions is the desire to access more advanced technologies, established foreign branding and robust global distribution networks. Compared to less developed Chinese counterparts, US and European businesses generally possess more significant track records of product development and brand equity accumulation, as well as substantial international customer relationships. In 2005, for example, Lenovo acquired IBM’s personal computer business. The transaction enabled Lenovo to gain access to a blue-chip, well-established product line and customer network. Had Lenovo acted alone in an attempt to replicate IBM’s success, such an effort likely would have required several years of significant expenditure and Lenovo’s seamless execution of numerous complex strategic decisions concomitantly. An acquisition assured them of IBM’s unique advantages without incurring undue time and internal expense that otherwise would have accompanied an organic approach. A principal deal consideration in China-focused M&A is an acquirer’s desire to secure a high-quality management team. With outbound transactions from China to US or European markets, Chinese businesses that seek to acquire US or European assets will generally prefer to retain the target’s existing management team. The inverse typically is true, too – US and European businesses that seek to purchase China-based assets generally understand the strategic advantages of retaining domestic Chinese managers who grasp the unique commercial and relational dynamics inherent in the Chinese economy. That is especially true with respect to securing local managers’ knowledge of key distribution nuances and customer relationships in China. US and European management teams generally recognise Chinese targets’ unique local know-how, intellectual property and local customer networks and supply chains.
In China M&A, two primary deal structures are asset acquisitions and stock purchases. In a typical asset acquisition, an acquirer generally purchases certain specified assets from a target company. In 2018, for example, China’s HNA Group Co sold approximately US$11 billion of its real estate assets globally, including approximately US$2 billion in assets located in China. The transaction specifically involved a sale of assets associated with a division within HNA Group. Other examples of asset transactions in China abound. With a stock purchase, in contrast, an acquirer generally purchases a specified amount of stock of a target business in exchange for commensurate ownership rights. To expand its international footprint to the United States in 2013, for example, Shuanghui – China’s biggest pork producer – purchased Smithfield Foods, a Virginia-based meat company, for US$4.7 billion in cash. The transaction’s cash price derived from the share value and number of shares of Smithfield stock. Smithfield stockholders received cash, while Shuanghui received all stock and, consequently, full ownership of Smithfield. The stock acquisition enabled Shuanghui to increase its earnings potential, its international market share and its capacity to serve Chinese consumers’ growing appetite for higher quality meat products.
China M&A activity decreased significantly in the first half of 2020 (H1 2020), relative to the first half of 2019 (H1 2019), in both overall deal volume and aggregate deal value. Declines in M&A activity occurred in both outbound and inbound transactions. The number of China M&A transactions and the deal value associated with those transactions in H1 2020 decreased by approximately 10 per cent and 13 per cent, respectively, relative to levels observed in H1 2019. Inbound China M&A transactions in H1 2020 decreased by 1.5 per cent whereas corresponding deal value increased 131 per cent, respectively, relative to levels observed in H1 2019. The number of private equity transactions in China also decreased markedly in H1 2020, relative to buyout activity observed in H1 2019. China inbound private equity transactions and the associated aggregate deal value decreased by 51 per cent and 60 per cent, respectively, relative to H1 2019. In H1 2020, China M&A transactions materialised across major industry verticals in the region, particularly within logistics, manufacturing, energy, financial services, chemicals, software, healthcare (biotech/medical devices), consumer products (food and beverage), insurance, robotics, steel and artificial intelligence.
Acquisitions continued the downward trajectory that began in early 2018. Continued uncertainty in international financial and capital markets stemming from turbulent US–China trade negotiations looms large in the eyes of many M&A participants in China. This uncertainty has become magnified considering a growing consensus view around an increased probability of diminished macroeconomic growth prospects in China and other major industrialised economies globally. Businesses with an otherwise strong interest in conducting M&A in China may continue to shelve or reconsider strategic planning in the country until bilateral US–China tariffs and other protectionist measures abate. In addition to macroeconomic concerns and general tensions emanating from tariffs, China’s domestic regulatory considerations remain a principal concern among M&A participants that focus on China. Domestic policies within China have witnessed a trend towards protectionism and retrenchment. This trend has generally mirrored the recent trajectory of China’s international protectionist measures that implicate the operations of businesses in the US and other industrialised markets. As a consequence, strategic planning and M&A strategies among US and European management teams confront virtually an unprecedented level of uncertainty with respect to the China M&A market. A ‘new normal’ of tension in China’s economic relationship with the US and European economies appears to have taken shape, with negative effects for overall M&A activity bearing a nexus to China.
A greenfield investment generally refers to a foreign direct investment whereby a business deploys capital for the purpose of expanding its commercial operations within another country. While not technically an acquisition, greenfield investments retain similarities to cross-border acquisitions and generally necessitate transacting with institutional counterparties – both private and governmental – in the foreign market.
With a greenfield investment, a business may determine to establish a new division, business unit or subsidiary in a foreign market. Management teams will generally describe these greenfield investments as establishing a commercial presence ‘organically’ or ‘from the ground up’. In the China market, a common example of greenfield investment manifests itself among the strategic investment decisions of many US or European businesses. In expanding commercially into China, US and European businesses often seek to establish a local supply division or manufacturing operation and typically will control each stage of the division’s or operation’s development. To that end, senior management teams will typically effectuate necessary investments of time and capital to ensure the project’s success and mitigate execution risk locally. This greenfield approach contrasts with an outright acquisition in which, for example, a US or European business will identify and purchase a target corporate entity or portfolio of assets in China.
Advantages of greenfield investment abound. A primary advantage is that the investing business retains control of operations, manufacturing, sales, staffing and brand image, among other key commercial components. Companies electing a greenfield approach also retain greater control over their strategy for expansion, creating natural economies of scale. This differs substantially from an acquisition in which a company generally faces a sharp rise in economies of scale, requiring a prompt – and often steep – increase in operating costs and capital expenditures. Greenfield investments thus generally enable management teams to pursue more measured financial management of a company’s working capital in support of an enterprise’s operations. Greenfield investments yield additional advantages by generally avoiding tariffs and engendering goodwill in the target country by producing jobs and supporting local economies.
Despite their advantages, greenfield investments involve considerable risk from both an execution and operational standpoint. Significantly, businesses that elect a greenfield approach generally assume substantially all responsibility for the completion and management of the new operation in the foreign market. In contrast, acquisitions and JVs implicate fewer operational risks post-closing because the acquirer or JV partner generally avails itself of an established sales team, existing distribution network, in-place logistics systems and intact distribution network. In greenfield investments, however, the investing business maintains virtually all responsibility for generating new business, maintaining distribution networks and achieving sales objectives.
Greenfield investments generally forgo the participation of a domestic partner and instead remain under the financial and strategic control of the business undertaking the investment. For greenfield transactions bearing a nexus to China, examples are many. In late 2018, for example, Tesla, the US electric motor vehicle producer, announced plans to open a major manufacturing facility in Shanghai, known as the Gigafactory Shanghai. The transaction derived principally from Tesla’s objective to access more real estate to assist its international expansion efforts. While Tesla was able to circumvent the need to negotiate with another private counterparty, it was required to transact with local government entities in Shanghai to complete the deal successfully. Specifically, in conjunction with the investment, Tesla signed a real estate lease with the Shanghai municipal government with two principal conditions attached. A central condition was that Tesla would contribute approximately US$323 million in annual taxes in China, commencing in 2023. An additional condition centred on new capital investment from Tesla: the company agreed to invest approximately US$2 billion over the subsequent five years into the Shanghai facility. Despite the financial and other burdens stemming from the lease conditions, Tesla proceeded with the transaction, recognising the importance of accessing the China market for purposes of strategic expansion. Importantly, Tesla structured the transaction as a greenfield investment, sidestepping the involvement of a domestic partner and retaining control over the new Shanghai plant. As the Tesla example illustrates, many US and European businesses observe the strategic advantages of pursuing greenfield deals in China, acknowledging that a pure ‘go it alone’ approach often remains a challenge, and significant dealmaking with government entities and other regulatory institutions is sometimes necessitated.
Greenfield investments happen to be the most common form of investment by Chinese companies operating in the United States. Data underscores this conclusion. Approximately 70 per cent of Chinese companies operating in the United States accomplish foreign investment in the United States via greenfield investment, while approximately 28 per cent of Chinese companies in the United States achieve expansion through conventional asset acquisitions of purchases of company stock. Examples of greenfield investments by Chinese enterprises in the United States abound. In January 2019, for example, China-based Fuyao Glass Industry Group – a manufacturer of glass for automobiles – announced its commercial expansion into the state of South Carolina. Specifically, Fuyao committed to invest US$16.1 million in a new facility in Greenville County, a major county in the state. Through its greenfield expansion, Fuyao observed strategic advantages in achieving closer proximity to major automobile manufacturing facilities in the United States and consummated the transaction principally under that stated objective.
Despite the prevalence of greenfield investment by Chinese enterprises in the United States, it is important to bear in mind that aggregate foreign investment from China to the United States has declined precipitously – by 75 per cent, in fact – during the past four years. Six-month aver- ages for Chinese foreign direct investment in 2016 and 2017 were approximately US$20 billion. These figures stand in stark contrast to the six-month averages in 2018 and during H1 2019, which reflected Chinese foreign direct investment of approximately US$5 billion. Contributing to these declines have been persistent bilateral trade tensions and heightened volatility in US and Chinese financial and capital markets, which have contributed to general market uncertainty. Because of these uncertainties, quantifying anticipated US–China cross-border greenfield investment values for 2020 remains elusive.
China’s ‘opening up’ policies and economic reforms in 1978 generated significant implications for China’s financial and capital markets. Significant among the reforms were China’s general rules on foreign investment. Under the rules, China has generally maintained strict regulations on foreign investment in certain key industries deemed to be ‘high-tech’. Principal industries subject to these rules have historically included automotive manufacturing, electronics and pharmaceuticals. Labelling these industries as ‘restricted’, the Chinese government has generally restricted transactions with foreign businesses in these industries to JV arrangements with local Chinese partners. The resulting effects on US and European businesses operating in China have been profound.
Within JVs in China, US and European businesses historically held less than 50 per cent ownership of the JV, pursuant to China’s statutory caps. While JVs in China have remained a popular avenue for achieving access to China’s markets, the approach has generated significant negative consequences for US and European businesses operating in the country. Ever-present risks include the problems of forced transfers of intellectual property, misappropriation risk, secret or unauthorised side agreements entered into by local Chinese partners, questionable distributions of earnings by Chinese partners and intentionally ambiguous contracts, among other issues. These practices, combined, have generally benefited the interests of the Chinese side in domestic JV arrangements, diminishing enterprise value and harming the interests of the US or European JV partner. As a result, US and European businesses have historically experienced tremendous difficulty in their attempts to conduct profitable operations and achieve positive returns on invested capital through JV arrangements in China. With so many persistent problems inherent with conventional JVs, many US and European businesses find themselves terminating JV arrangements in China after only a few years.
JVs in China are subject to several common pitfalls. Chief among them is that the process of identifying and working with a trustworthy local Chinese partner remains elusive. In addition, the due diligence required by US and European businesses during a negotiation process with a prospective local Chinese partner can exact exorbitant amounts of time and expense. A truism of the China market is that historically it has been the exception – not the rule – for a US or European business to achieve a lasting productive partnership with a local JV partner in China. As is often the case, the foreign business is generally required to identify and develop a relationship with a Chinese firm with which the foreign business has had no prior working relationship. This is where serious problems can emerge: under China’s regulatory regime, local Chinese partners are incentivised to leverage domestic JV rules to encourage foreign businesses to provide most of the JV financing, assume liability, deliver capital and personnel and furnish proprietary technology and intellectual property – while leaving majority ownership in the hands of local Chinese partners. A lopsided effect often ensues.
Most significantly, JVs in China typically require agreements that ensure the transfer of intellectual property from foreign businesses to the local Chinese partners. Nevertheless, US and European businesses have generally looked past this downside risk because the perceived commercial opportunities afforded by doing business in China have largely outweighed the risk of potential misappropriation or theft of company trade secrets. This ambition often clouds front-end caution in a dealmaking setting in China and causes the foreign JV partner to contribute capital or sensitive commercial information unnecessarily or prematurely in JV arrangements.
An additional reason that 50/50 JV arrangements in China often fail is a lack of transparency and understanding between the parties. After the formation of JVs in China, the foreign JV partner will often confront vague or confusing language in post-formation documentation. In addition, JV protocols are generally prepared by the local Chinese partner, thereby affording it inherent first-mover advantages as the sponsor of JV administrative and operational rules. Further, local Chinese partners often have discretion on local managerial decisions and implement local strategic and initial initiatives – for better or worse – without the consent or oversight of the foreign JV partner. As a result, foreign businesses in JV arrangements in China generally remain legally exposed in China and bear substantial operational risk. Compounding these challenges is the fact that international law generally remains unhelpful for US and European businesses in settling JV disputes in China. And even if international courts could provide a suitable forum, enforcing judgments and collecting any damages or other relief in China generally poses significant difficulty for US and European businesses.
Joint venture legislation in China
JV legislation in China poses a unique set of challenges for US and European businesses operating in the country. Significantly, JVs with foreign partners in China undergo a unique authorisation process. First, all documents provided by the foreign JV partner must be notarised and authenticated by the Chinese embassy or consulate based in the foreign JV partner’s home country. In addition, depending on the industry involved, JVs with foreign partners are subject to restrictions and prohibitions under China’s Foreign Investment Industries Guidance Catalogue and Negative List for Admission of Foreign Investments. This legislation has been jointly issued by China’s National Development and Reform Commission (NDRC) and the country’s Ministry of Commerce (MOFCOM).
JV legislation in China also imposes minimum investment requirements. Under China’s Law on Sino-Foreign Equity Joint Ventures and the Law on Sino-Foreign Contractual Joint Ventures, the foreign JV partner is required to contribute at least 25 per cent of the equity capital in the JV arrangement with a local Chinese partner. Contributions falling below this threshold level result in the entity’s declassification as a Sino-Foreign Joint Venture from a tax perspective – bearing negative financial implications for the JV. In many instances for the foreign JV partner, a majority stake may be most optimal due to the JV arrangement’s allocation of responsibilities, capital and obligations for the respective JV partners. In any scenario, it is generally advisable for a foreign partner to pursue a case-by-case approach when considering an expansion into the China market regarding a JV arrangement.
In the wake of growing pressure from US and European regulators and private institutions, Chinese regulators recently loosened the country’s rules governing JVs in certain industries. Foreign businesses operating in China may now hold a majority stake in JV arrangements within industries that had been formerly deemed ‘restricted’. This policy shift enables foreign businesses to maintain greater control in JV arrangements with local Chinese partners and better protect their own economic and other interests in the country.
In 2018, amid rising trade tensions between China and the United States, the Chinese government committed to gradually phase out its restrictions on foreign ownership within certain industries. Those industries included life insurance, financial services and automotives. Significantly, the Chinese government took an unusual step by committing to remove foreign ownership caps on commercial vehicles (including buses and trucks) by 2020 and to lift all such ownership restrictions on passenger vehicles by 2022. These measures constituted an unprecedented reform by Chinese regulators for a domestic industry that had historically sheltered Chinese automotive enterprises from foreign ownership and external competition. The policy changes bode favourably for US and European carmakers that operate in China. China happens to be the world’s largest market for vehicles. Removing ownership restrictions for foreign carmakers will likely yield greater numbers of opportunities for M&A dealmaking and JV transactions in China. Enabling majority ownership in JV arrangements reduces downside risk for foreign JV partners in China with respect to technology transfers and local operational management. In addition, the reforms – which apply across China’s key provinces of economic activity and growth – open up extraordinary potential new opportunities for market penetration and investment for US and European carmakers in China.
These reforms to China’s automobile industry mark the first time the Chinese government has relaxed its attitude towards these types of restricted high-tech industries in China. Based on prior guidance and promulgations from key regulatory agencies in China, it is reasonable to infer that these policies may be a precursor for broader liberalisation of the other key industries with respect to JV ownership requirements. Those industries include electronics, life insurance, pharmaceuticals and telecommunications. Already, Chinese regulators are beginning to relax these restrictions for the banking sector in China. Today, banks in China can obtain a 51 per cent ownership of a JV in the country. Major US and European financial institutions have responded accordingly; established US and European financial institutions have submitted applications with the China Securities Regulatory Commission to increase their respective stakes of Chinese financial enterprises to attain majority ownership positions.
Regulatory trends impacting deal structures
Regulatory trends in China often feature prominently in M&A transactions of scale. Regulatory considerations become especially pronounced in M&A deals that implicate China’s administrative state agencies. For example, China’s MOFCOM and NDRC factor significantly both in M&A negotiations and in concomitant regulatory approval processes undertaken at key stages of M&A transactions bearing a nexus to China. While the current macro-political landscape between the United States and China has been especially uncertain on matters of trade and commerce, at least two regulatory developments in China signal important reform-oriented trends that bode favourably for US and European investment and M&A activity in the country.
Foreign Investment Law
China’s National People’s Congress passed a new Foreign Investment Law on 15 March 2019. The new law took effect on 1 January 2020.
The Foreign Investment Law is significant for US and European businesses transacting in China because the law provides new rules and guidance governing the treatment of foreign-owned businesses that operate in China. Importantly, the legislation will replace three foreign investment laws previously enacted in China between 1979 and 1990:
- the Wholly Foreign-Owned Enterprise Law;
- the Chinese-Foreign Equity Joint Ventures Law; and
- the Chinese-Foreign Contractual Joint-Ventures Law.
The Foreign Investment Law bears several important characteristics with implications for China M&A transactions and foreign investment activity in China. The Foreign Investment Law defines foreign investment as any foreign investor’s direct or indirect investment in mainland China, including foreign-invested enterprises (FIEs), stock ownership and investment in new projects. The new legislation provides that foreign investment will be treated no differently from domestic investment during the investment access stage, which is defined as the establishment, acquisition, expansion and such other stages of an enterprise. The Foreign Investment Law does not apply to Hong Kong, Macau or Taiwanese investments.
In addition, the Foreign Investment Law sets forth new policies for promoting foreign investment in China. The new legislation provides that equal treatment will be afforded to foreign and domestic investments regarding business development policies and government procurement. Further, under the new legislation, Chinese regulators will be required to publish foreign investment guidelines and consult FIEs when formulating new rules with respect to foreign investment in China.
The Foreign Investment Law also sets forth various protective measures for foreign investors in China. Importantly, under the new legislation, foreign investments in China will not be subject to expropriation by the government except under special circumstances and for the public interest, whereby the Chinese government will be required to pursue procedural mechanisms to compensate an aggrieved foreign investor. In addition, the new legislation provides that forced technology transfers will be prohibited by administrative measures.
The Foreign Investment Law also establishes an FIE working mechanism to address complaints made by foreign investors in China. The Law also contains provisions that regulate the permitted scope of foreign investment in China. Significantly, the new legislation stipulates that foreign investors may not invest in prohibited industries in China. Further, for industries requiring licences, China’s regulators will be required under the new legislation to treat foreign applications in the same way as domestic applications. Under the new legislation, China’s national security review decisions will remain final, while M&A transactions with mainland Chinese enterprises will be required to file for formal anti-monopoly review with Chinese regulators.
The Foreign Investment Law also outlines legal responsibilities for foreign investors. Foreign investors will remain subject to penalties for investing in prohibited industries and for violating conditions specified by the Negative List regarding investments in China’s restricted industries. Penalties would include cessation of business investment, restoration of the status quo ante (eg, disposition of shares or assets) and potential forfeiture of illegal proceeds. Finally, the Foreign Investment Law allows China to take reciprocal action against jurisdictions that discriminate against Chinese investment. Upon official adoption of the new legislation on 1 January 2020, FIEs will have up to five years to comply with China’s general corporation and partnership laws. Expectations of the Foreign Investment Law remain uncertain. While the new legislation suggests a higher probability of more open markets and less restrictive investment requirements for foreign enterprises in China, the new law likely will attract a significant degree of ongoing interpretation among multinational M&A participants, Chinese courts and Chinese regulators.
National Negative List
China’s Negative List constitutes a list of industries in which foreign investment is either prohibited or restricted in China. China’s 2018 Negative List is significant for US and European businesses operating in China because it relaxes or removes restrictions on foreign investment in key industries; notably, agriculture, mining and infrastructure. The 2018 Negative List bears additional significance because it provides a timetable for ushering in gradual reforms to remove investment restrictions in other key industries, including finance, insurance and the automobile industry. The incremental liberalisation inherent in the revised Negative List timetable bodes favourably for US and European businesses operating in China. Importantly, it signals more reform-oriented improvements to China’s financial and capital markets in what otherwise has been an increasingly protectionist domestic regulatory environment within China over the past four years.
The revised Negative List ushered in important and positive developments for several key industries, including mining, transportation, culture, sports and entertainment. For example, prior to the implementation of the revised Negative List, exploration and development of natural gas assets in China required a JV arrangement; the new Negative List removes this requirement and allows foreign businesses to pursue outright acquisitions. Similarly, for the transportation industry, under the new Negative List foreign transportation businesses are now permitted to retain control of a domestic JV arrangement in China, whereas previously they were not. Likewise, for the cinema industry in China, foreign entertainment businesses are now allowed to control domestic cinema operations in China under the new Negative List, whereas prior rules prohibited any such arrangement.
In addition to positive developments stemming from the revised Negative List, China rolled out an ‘encouraged industry’ list in 2019. The list sets forth a group of industries for which investment will be ‘promoted generally’ in China. The 2019 Foreign Investment ‘Encouraged Catalogue’ in China highlights the following sectors for greater foreign investment:
- modern agriculture;
- advanced manufacturing;
- high and new technology;
- energy conservation and environmental protection;
- modern service industry;
- information technology (5G core components, IC etching machines, chip-packaging equipment and cloud computing devices);
- manufacture of equipment (industrial robots, new-energy vehicles and key components of smart cars);
- modern pharmaceuticals (key raw materials for cellular therapy drugs and large-scale cell culture products); and
- new materials (aerospace new materials, monocrystalline silicon and large silicon wafers).
This all augurs well for more constructive M&A dealmaking in China for US and European businesses, notwithstanding an otherwise challenging macroeconomic environment and continued trade tensions with China.
In the China M&A setting, deal structures generally assume three basic forms: acquisitions, JVs and greenfield investments. Acquisitions generally remain a primary method among US and European businesses seeking access to China’s market. Outbound acquisitions from China to other markets also enable Chinese buyers to gain access to strong foreign brands, new customer networks and new management teams. Greenfield investments, or direct investments, generally bear greater execution risk while retaining core similarities to acquisitions with respect to the level of strategic planning necessitated. Greenfield investments remain the principal deal structure pursued by Chinese investors in the US, while acquisitions and JVs generally factor more prominently in transactions undertaken by US and European businesses in China. New regulatory developments affecting China’s JV requirements and the country’s Negative List indicate a nascent liberalisation in China’s policies. While broader trade and commercial tensions with China may continue to hamper cross-border M&A bearing a nexus to the region, incremental liberalisation in China’s JV policies likely increases the probability of greater appetite for JV dealmaking in China among US and European businesses in 2020 and for the foreseeable future.