On August 17, 2017, China’s NDRC, Ministry of Commerce, the People’s Bank of China and the Ministry of Foreign Affairs jointly released their Opinions on Further Guiding and Regulating the Directions of Overseas Investments (the “Guidelines”). The stated objectives of the Guidelines are to improve the macro guidance on overseas investments, further guide and regulate the directions of overseas investments, promote the sustainable, rational, orderly and healthy development of overseas investments, effectively prevent all types of risks and properly meet the needs of national economic and social development.
The Guidelines are encouraging for China’s continued overseas investment in the natural resources sector. The Guidelines indicate the China will support domestic enterprises with adequate capabilities and qualifications to actively and prudently invest overseas in an effort to, among other things, make up for China’s shortcomings in energy and resources. In particular, Chinese domestic enterprises have been encouraged to participate in the exploration and extraction of offshore oil and gas, mining and other energy resources based on prudent assessment of cost benefits.
In the past couple of years, we have seen several major Chinese overseas investments in the natural resources sector including:
- Yancoal’s ongoing acquisition from Rio Tinto of a majority interest in the Hunter Valley coal assets in Australia
- China Moly’s acquisition from Freeport of a majority interest in the Tenke copper and cobalt mine in the DRC
- Sinoenergy’s acquisition of Long Run Exploration, an intermediate oil and natural gas public company in Canada*
While we expect that overseas investments in the natural resources sectors by Chinese domestic enterprises will continue apace, we also expect that Chinese acquirers will spend more time on technical and legal diligence, cost benefit analysis and compliance issues in making their overseas investments.
* McCarthy Tétrault acted for Sinoenergy on this acquisition