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China enacts new foreign investment security review measures

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On 19 December 2020, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly issued the Measures for Security Review of Foreign Investment (New Measures) (the official Chinese text is available here; and an unofficial translation is available here). The New Measures, effective from 18 January 2021, represent China’s continued efforts to provide a clearer legal regime for national security review comparable to similar procedures in other developed economies, such as the CFIUS review in the United States.

How are the New Measures different from the existing regulations?

China’s national security review was first introduced in 2011 by the Circular of the General Office of State Council on the Establishment of Security Review for the Merger and Acquisition of Domestic Enterprises by Foreign Investors (2011 Circular). The 2011 Circular set forth a national security review regime where, similar to the foreign investment approval regime prior to the enactment of the Foreign Investment Law on 1 January 2020, MOFCOM would take the lead in the review of foreign investment for national security concerns in coordination with other government agencies. From 2015, the State Council issued the Circular on Issuing the Provisional Measures for National Security Review of Foreign Investment in Pilot Free Trade Zones (Free Trade Zone Circular), under which a slightly modified security review regime was created for foreign investment in the Shanghai, Guangdong, Tianjin and Fujian Pilot Free Trade Zones.

The New Measures apply to foreign investment in the entire territory of China, including the Pilot Free Trade Zones. While the New Measures seem to have combined features of both the 2011 Circular and the Free Trade Zone Circular, there are several notable new developments.

(a) Indirect investment covered

The most prominent difference is that the New Measures are intended to cover both direct and indirect foreign investments in China, in contrast to the existing national security review that applies only to foreign direct investment. As such, it seems that any investor acquiring indirect “actual control” of a Chinese target covered by the New Measures in an offshore transaction will likely be subject to a national security review in China.

The New Measures also apply to greenfield investment that is excluded from review under the 2011 Circular1. Under prior regulations, foreign investment in the financial services sector was supposed to be subject to separate legislation but such legislation was not issued. The New Measures are intended to also apply to foreign investment in the financial services sectors.

(b) Joint working mechanism

Another different feature is that the New Measures establish a working mechanism jointly headed by NDRC and the MOFCOM at the central level. A Working Office will be set up under NDRC but will be jointly led by NDRC and MOFCOM, who will be responsible for the national security review of foreign investment. Unlike the prior regulations under which MOFCOM or its local counterparts are responsible for accepting security review filings, the Working Office is now authorized to accept direct filings submitted by the investor.

(c) Staged review process

The New Measures also modify the existing review process. Under the New Measures, the security review will be a three-stage process as follows:

  • Jurisdiction review: The Working Office has 15 working days (as opposed to five working days under the existing regulations) to determine whether they will commence a security review of the investment in question.
  • General review: If the Working Office decides to commence a security review, they will then have 30 working days (similar to the review period under the existing regulations) to perform a general review of the investment in question. After the general review, the Working Office will either approve the transaction or decide to commence the special review process.
  • Special review: The special review can take up to 60 working days (similar to the review period under the existing regulations) and may be extended if circumstances so require. Under the prior regulations, the investment in question may be referred further to the State Council for determination. Such a referral no longer exists under the New Measures so the Working Office is authorized to make a final determination upon the special review.

(d) Whistle blower mechanism

The New Measures permit any person to report to the Working Office and request the Working Office to commence a review in respect of any foreign investment if such a person believes there is a national security concern.

What are the issues with the New Measures?

There are still a number of issues to be clarified under the New Measures. For example, “national security” remains undefined and there is no clear guidance on what elements the Working Office will consider in determining whether there is national security concern2.

Further, covered sectors under the New Measures include, other than the military or national defense related business:

  • key agricultural products, key energy and resources
  • key major equipment manufacturing
  • key infrastructure, key transportation services
  • key cultural products and services
  • key information technology and internet products and services
  • key financial services
  • key technology
  • other key sectors

What is considered “key” is not set out in any regulation, leaving the Working Office with discretion to make a determination that may shift with changes in China’s foreign investment policies or national security outlook from time to time. Based on our recent experience, certain businesses requiring a value-added telecommunications service operating license could be subject to national security review. Further, with the recently revised technology export catalogue, foreign investment in Chinese big data or artificial intelligence companies may also be subject to national security review.

What should foreign investors do?

The national security review under the New Measures is a mandatory regime as it is under the prior regulations. Any investment project falling within the ambit of the New Measures that will be closed after 18 January 2021 will be required to be notified to the Working Office for a review. Therefore, investors who are currently investing or proposing to invest in China need to consider whether a national security review filing is triggered under the New Measures. Moreover, those who have already owned investments in China and are looking to dispose directly or indirectly of their interest in such investments will need to consider whether the potential buyer will require a national security review in China.

Source: – Lexology

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Breaking Down The Barriers Preventing Millions From Investing In Companies That Do Good – Forbes

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In the age of sustainability impact investing and ESG (Environmental, Social, and Governance), the non-financial factors that investors apply to identify material risks and growth opportunities, have become buzz terms. But not for everyone. According to research from new investment fund manager DUGUUD, this industry jargon leaves many people mystified and this is holding them back from investing in businesses that help the environment and society.

The survey of 3,000 adults found that just 10% were aware of the term impact investing and could explain it, yet when it was explained to them 60% agreed that it could create positive change in the environment and society. And three times more people agreed than disagreed that if they had funds to invest, they would want to invest in this area.

“It’s time for the whole financial services industry to ditch terms like impact investing and ESG and to start talking in a language everyone can understand,” says DUGUUD’s CEO and serial entrepreneur David Scrivens.

DUGUUD, the trading name of Amberside Capital, is an FCA-regulated fund manager launched this month, with a focus on climate change, increasing biodiversity, improving public health, reducing inequality, and improving education. It was born out of a need to create a platform that allows the general public to invest in companies that make a genuine and positive difference to the world.

“It is difficult and costly to create a fund that’s open to the public, and it takes a lot of marketing spend to reach them,” says Scrivens. “Most fund managers get institutional investors, such as pension funds, to meet the minimum investment level required to launch a fund, but this route is often to the exclusion of the general public.”

The research also revealed a significant level of cynicism, with 58% of respondents of the opinion that most businesses claiming to be doing good are actually spending more time and money marketing their environmental and societal intentions than on taking tangible actions. Two-thirds (67%) also agreed that there are now so many businesses claiming to run their business in a way that is better for the environment and society that they find it difficult to trust the real impact of most of their claims.

“It is extremely difficult to prove environmental and social change, and comparing organizations is also tricky,” says Scrivens. “There is no easy solution to this without government intervention to create tools for measuring impact.”

However, he insists that DUGUUD will not allow the companies it invests in to focus on just the one area of good they may be doing, but will hold them to account for all aspects of their business. They will also show investors tangible examples of what companies are doing, for example, how the company has moved to greener energy, not just by paying an electricity supplier to certify that they are getting green energy when it just comes through the grid, but by building additional green energy generation.

The team has already invested in several projects, including £17 million in Sterling Suffolk, which produces tomatoes in what has been dubbed ‘Europe’s cleverest greenhouse’. The semi-closed hydroponic glasshouse is considered 25% more energy efficient than a traditional one and allows for greater carbon absorption, and potentially creates better-tasting crops.

Wildanet is a Cornwall-based fiber company aiming to bring much-needed high-speed internet to rural communities in the region to improve digital inclusion. DUGUUD has raised the company around £50 million to help them achieve this goal.

Other investments include Virti, which trains medical staff remotely using virtual reality, and which has been incredibly valuable during the pandemic, and Ateria Health, which has developed a way to improve gut bacteria in humans that could help with common issues such as irritable bowel syndrome.

Another key finding of the research was that 67% of adults who were asked about investing would expect independent financial advisors (IFAs) to understand this area and supply options as part of the funds they discuss with customers, while 59% would also expect any pension provider to consider these kinds of investments in how they manage, invest and report on the pension fund.

This highlights the role that IFAs and pension firms have to play in creating more clarity for their clients around investing for positive change. “We believe that all professionals should be helping to spread the word about investing to make an improvement for society, and we aim to work with as many of them as possible,” says Scrivens.

Looking ahead, the plan is to create a fund that draws on the investment team’s infrastructure experience to make larger environmental and social projects come to fruition, and to launch a science-based fund focused on investment in technologies that can make a huge difference to the planet or society, but preferably both.

Scrivens adds: “We are also considering whether to offer a small part of our own company for individuals to invest in so that people can join us on our journey to make a real positive difference and help more companies that do good get the investment they need.”

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The best investment I ever made – Shreveport Times

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I started in the investment advisory business in January 1987. My timing was great as I experienced my first “market crash” in October of that year. Today that correction in the market is barely a blip on the screen. I was numb to bumps in the road at that stage in my life. Having just spent 6 years at an aggressive independent oil and gas company had prepared me well – especially when they turned the lights out on the entire industry in 1986.  I found myself “earning” $205/week on unemployment! It was a very inspirational time during which many of us reflected on our professional future. Regardless of the events of 1987, it was one of those character building periods that added to my survival instincts.

As my title above suggests, I’m frequently asked my opinion regarding this investment or that opportunity in which they (or more likely, their friend) might pursue their fortunes.

True confession: It seems all the “good stuff” always eluded me. No one ever even approached me with any of the local scams that sounded awfully good at the time and sent some folks to jail. Apparently, I was “out of the loop” on the juicy deals. Full disclosure, some dear friends of mine did offer to have me join them in Tulsa to form a new oil and gas company.  I declined. They did get rich and built and sold numerous oil and gas companies. Not even Warren Buffett gets it right every time!

One more aside, before I answer the question about my “best investment”! I have had what I consider to be real success with some of those filthy, dirty, expense laden variable annuities. Due to a selection heavily into their stock sub-accounts they have outperformed most of the popular indices. If the bottom ever falls out, I sleep well knowing their guarantees will pay me for life. Other than that, just because you might be curious by now, I’ve found comfort with Exchange Traded Funds and Mutual Funds managed by my Harvard/Stanford educated, brilliant friend and partner in Birmingham, Rick Wedell. He’s the best! Not to be out done, I also cling to a group of blue-chip, high-dividend paying stocks I lucked out and bought last year on March 20th – three days before the market hit the bottom. I promise, it was luck – not great timing on my part. At those low prices the dividends were just so high I couldn’t resist any longer.

My best investment, however, was in a little-known guy named Tommy Williams. In 1997 I formed a totally unknown company aptly called Williams Financial Advisors. That was accomplished with the guidance and advisory contribution of more mentors than I can name in this writing. I dove headfirst into the world of entrepreneurship. Along the way I established key relationships with the best (in my opinion) broker/dealer in the country, some wonderful and supportive clients, and ultimately some very bright – and much younger – partners. That next generation ultimately, over time, bought bits and pieces of the firm.  One day in November of 2020 they asked me what I wanted to do with my furniture! It was a real win-win and my wonderful desk, credenza, etc. are still in storage awaiting something… To anyone reading this who asks for advice due to their similar role in a startup venture I would say this. You already know all the cliches – never give up, work hard, try to establish a win-win with everyone you come across, don’t burn bridges, etc., etc. But you may not be thinking about valuation. That is, the value of your enterprise to a successor(s). I was fortunate – I had that type of advice years before and it changed the way I viewed the Company – thus creating enterprise value and becoming my best investment ever! Only in America. I’d recommend an investment in yourself to anyone.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal.

RFG Advisory and its Investment Advisor Representatives do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. Please consult your own tax, legal, and accounting professional for guidance on such matters.

Visit us at www.williamsfa.com. Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional with Williams Financial Advisors, LLC. Securities offered by Registered Representatives through Private Client Services, member FINRA/SIPC. Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Advisor. RFG Advisory, Williams Financial Advisors, LLC and Private Client Services are unaffiliated entities. Branch office is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.

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A classic investing read for summer (psst … it’s free) – The Globe and Mail

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Is there a good book you recommend for retail investors? I have read several that explain how markets and trading work, but I have found very few that discuss the strategies one should use to invest profitably. One of the hardest decisions I have is when to sell, since if I don’t have extra cash the only way to buy another stock is to sell something first.

As I discussed in a recent column, I’m not a fan of trying to create wealth by trading. Instead, I believe in building a diversified portfolio of solid companies, or exchange-traded funds, and holding them for the long run. Focusing on stocks that raise their dividends regularly has worked well for me, as a growing payout is usually a sign of a healthy company and provides a powerful incentive to stay invested instead of constantly trading in and out.

When I was starting out, one of the most influential books I read was Lowell Miller’s The Single Best Investment: Creating Wealth with Dividend Growth. It is an engaging and accessible read that will not only give you the tools to identify great dividend stocks, but will help you deal with the 24/7 onslaught of market noise that often leads small investors astray.

I’m not exaggerating when I say the book might very well change how you think about investing.

As Mr. Miller, the founder and now-retired chief investment officer of Miller/Howard Investments, writes in the book’s introduction:

“Investing isnʼt some athletic event where agility and flashes of virtuosity are the secrets of success. Rather, investing really is investing – the methodical accumulation of capital through a sensible and disciplined plan which recognizes that ‘shares’ are not little numbers that jump around in the paper every day.

“They represent a partnership interest in a real and going business. Your plan, very simply, must recognize that you will manage your investments by actually being an investor – a passive partner in a real and going business.”

Even though it’s a U.S. book and the latest edition was published in 2006, the principles are still relevant to Canadian investors. Here’s the best part: The book is now available as a free PDF download from Miller/Howard’s website at: bit.ly/SingleBestInvest.

Prefer a hard copy? Check online or at your local library.


In The Single Best Investment, Lowell Miller writes that a company’s bonds should have a Standard & Poor’s credit rating of BBB+ or better – considered “investment grade” – to qualify as a suitable stock. Is the bond rating something you consider when buying a stock for your model portfolio? Is there an easy way to check this for individual companies in Canada? I have tried scrolling through lists of bonds in my brokerage account but I can’t seem to find bond ratings for individual companies.

Yes, I consider the credit rating when buying stocks personally and in my model Yield Hog Dividend Growth Portfolio (tgam.ca/dividendportfolio). A lousy credit rating indicates that a company could have trouble meeting its obligations, and in such cases the dividend is often the first casualty. For that reason, I usually stay away from companies whose bonds are rated as “speculative,” or below investment grade.

Mr. Miller’s minimum credit rating is slightly more stringent than the common definition of investment grade, which includes anything rated BBB- or higher by Standard & Poor’s. According to S&P, companies in the BBB family generally have “adequate capacity to meet financial commitments, but [are] more subject to adverse economic conditions” than those rated A, AA or AAA. (Fitch and DBRS use a similar letter rating system as S&P, while Moody’s defines investment grade as anything rated Baa3 or higher on its scale.)

(One exception to the investment grade rule in my model portfolio is Restaurant Brands International Inc., whose debt is rated BB by S&P. However, the agency recently upgraded the owner of Tim Hortons, Burger King and Popeyes to “stable” from “negative,” saying it expects a continued rebound in sales and profitability as the pandemic recedes and the company opens more franchised restaurants. So I’m comfortable giving Restaurant Brands some slack on its credit rating.)

There are several ways to find a company’s credit ratings. One is to check the investor relations section of its website. A Google search of “BCE credit rating,” for example, brought up a company web page with all of BCE Inc.’s bond, commercial paper and preferred share credit ratings from S&P, Moody’s and DBRS. BCE and other companies typically provide additional credit rating information and analysis in their annual reports.

Another option is to go directly to the credit rating agencies themselves. For example, the DBRS website – dbrsmorningstar.com – lets you search for a company and read detailed reports about its recent credit rating changes or confirmations. This will give you an even deeper understanding of the company’s financial position and outlook. S&P and Moody’s also make credit reports available, but you’ll need to register to get access.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

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