Janet Hui, a partner from the leading Chinese law firm Junhe, specializing primarily in cross-border antitrust and M&A, analyses the impact of the Brexit on Chinese companies and gives her view from the perspective of an outside observer.
Leaders League. What was your reaction when you first heard about the result of the Brexit referendum?
Janet Hui. The result is quite surprising to me, and I think for most Chinese, at least for people in Beijing, it came as a surprise, probably because we are far from the eye of the storm and received information indirectly. Actually I was in London about a month ago attending conferences and meetings, and at that time we all thought that it wouldn’t happen.
Leaders League. Do you think that the Brexit will help strengthen Europe or rather weaken it?
J. H. We are very concerned about the situation, and we think this is definitely not good news for Europe. The general observation is that Europe may be further weakened, and we are more worried about this exit mentality leading to the break up the whole European Union system. We believe if one more country tries to leave, the whole EU system will fall down, coupled with the fact that some European countries are already suffering economic crisis, the situation will then become really serious.
Leaders League. What has the general reaction of Chinese companies been?
J. H. Actually, this morning I just attended an event about Chinese outbound investments to the UK and Europe held in the British embassy in Beijing, and unsurprisingly the Brexit became the hot topic this morning, and this event was mostly attended by Chinese companies!
I think Chinese companies probably won’t exit the UK/EU very quickly, since it’s not something that can be done overnight, but a lot of them are putting on hold of any possible investment or adopting a “wait-and-see” attitude. They are currently discussing possible projects they’ll put on hold, or taking a more conservative view concerning their previous aggressive expansion plan.
But not all messages are negative. At the same time, if Chinese companies are interested in buying European assets or business, this situation may help. They expect Sterling and the Euro to continue to drop, and this is a shaky situation for the EU as the Euro may drop more, so some companies see this as a potential opportunity to buy good assets in high technology, famous branding or certain operations that they may not have been be able to acquire controlling shares in before. But I think no one will rush in or out, but rather wait and see for a certain period of time.
Leaders League. What measures will Junhe take to protect your clients concerning their current operations or future investments?
J. H. I think we need to look at two scenarios.
For projects that have already been discussed, we just need to discuss with our clients about the implications for them, assuming the legal and regulatory implications within the UK and EU are quite important. As far as I understand, the UK cannot just leave, they still need to respect and re-negotiate the terms of their cooperation agreement with EU, as well as trading terms, so for those projects that are not yet committed, there is a lot of possibilities and we can always have flexible commercial terms, so our clients can always move forward depending on their sensibility towards different levels of risk involved and different scenarios.
A more difficult scenario will be probably the transactions that have been committed but not closed in the UK/EU. There will be tremendous legal and regulatory changes impacting their daily operation, so they will be faced with challenges and uncertainty due to such changes. It will take a few years to absorb this.
Leaders League. Would you say that for lawyers, this is more of an opportunity than a crisis?
J. H. Maybe. As lawyers, we have more work to do, but at the same time, given the changes in the legal and regulatory regime, we need to catch up and adapt to the changes because our clients need to get updates from us. Of course, this kind of situation will create more legal work for our firm, because our clients call us for assistance whenever there is a problem, and it’s our duty to assist their business.
Leaders League. What advice would you give to your clients to best protect their interests for the moment?
J. H. I would suggest taking a conservative view and follow the trend. For anything that is not yet committed to the UK/EU, better put it on hold. In terms of the currency, don’t hedge against Sterling or the Euro, it might be too early to do anything, even for hedge funds. When you look at the UK now, it’s a little bit messy, and the market is still in chaos in terms of understanding the messages and implications, and no one can claim to be an expert and say definitively what happened. In such circumstances, I’d advise them to remain conservative and not to rush in or out. Who knows, this may be an opportunity.
Jeanne Yizhen Yin