Linda Davinson, Head of China Desk, Europe & Americas sits down with Americas’ Commercial Director, Michael Secondo, to discuss trends with China inbound and outbound investments.
Michael: Linda, welcome to our specialised desk where you head China expansion across Europe and the Americas. You’ve received this appointment because of your international experience, having worked across the US, China and Europe. What excites you most right now as a leader focusing on investments going in and out of China?
Linda: Change excites me. Although there’s a lot of uncertainty in 2020 with geopolitics and COVID-19’s impact on the world’s economies, I remain an optimist. Crisis creates opportunity. Intertrust is well-positioned to help our clients navigate this uncertainty, given our longstanding expertise, close to 4,000 professionals across the globe and our significant ongoing investments in technology. People are still doing business in the new BAU environment and many are seeking opportunities stemming from the pandemic.
M: What are you seeing regarding trends impacting China inbound and outbound investment in 2020?
L: China outbound investments have significantly decreased due to rising geopolitical tensions and increased foreign investment screening by many, if not most countries, all intensified by the pandemic. Most have been focused on doing domestic China deals. We still see a lot of interest in China from US and European investors as they continue to bet on China’s consumer market, as well as technology and industrial sectors. For most, new deals remain on hold given the uncertainty and logistics.
M: What about trends you are seeing in private equity in China, and generally with COVID-19?
L: The industry saw a slowdown in new deal flow, specifically at the start of lockdown and with travel restrictions, but it’s picking back up. Private equity in China still comprises a smaller percentage of China GDP relative to more developed PE markets, which means room for strong growth. There’s plenty of capital raising activity, but still a wait-and-see position for capital deployment with the uncertainty surrounding the pandemic and the current geopolitical environment. We see buyout funds strongest, alpha creation separating the competition and fundraising consolidation amongst GPs.
M: How do you see growing tensions between the US and China shifting this business landscape into the new year?
L: The rhetoric will only continue to escalate between the US and China in the run-up to the US presidential election. US-China relations, in concert with COVID-19, will be front and center of political and business discussions globally. Whether there will be concrete actions taken by either side and what happens commercially remains to be seen. Regardless, businesses around the globe will continue to navigate and adapt to these tensions, including to any increasing regulatory scrutiny. For businesses already invested in China, we don’t see them leaving or altering their long-term business plans in China. China is simply too large of a world buyer and is still the world’s fastest growing economy. The same is true for Chinese businesses already abroad. Regional shifts include more focus on Southeast Asia. For China outbound, there’s more interest in European assets over US under the circumstances.
M: In your view, are there any positive outcomes from the pandemic?
L: Yes, the adoption of digital technologies to support remote working is an example. Curveballs like COVID-19 force people, governments and companies to adapt, whether in technology, healthcare, or business generally, and to adapt quickly. Forcing adaptation often yields strength, innovation and other long-term benefits.
M: Any other trends you’ve noticed in the market, such as “ESG” or sector trends due to the pandemic and/or current geopolitical environment?
L: Yes, ESG is clearly a hot topic and has only accelerated due to COVID-19 as investors demand more transparency and long-term sustainability. The pandemic shocked the world and underscored the impact and response to more non-linear and complex risks. As far as sector trends, we see environmental sustainability trending, along with consumer brands and other more COVID-19 resilient industries, such as healthcare, financial services and technology. Countries are also taking a closer look at their best interests, hence increased tax and cross-border agreements, regulatory updates such as foreign investment screening to protect strategic assets, data hosting and GDPR issues to name a few.
China is the world’s second largest economy, and still the fastest growing. Linda is pleased to be heading Intertrust’s China Desk, which aims to help our clients and partners bridge gaps between East and West, while leveraging the full suite of global expansion services offered by Intertrust. To learn more or to continue the conversation with Linda, get in touch.