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
Turkey announces $18.5 billion public investment programme for 2021 – The Guardian
ANKARA (Reuters) – Turkey has announced a 2021 public investment programme worth 138.5 billion lira ($18.53 billion), with communication and transportation projects receiving the largest allocation of the investment funds.
The programme, published in the Official Gazette late on Friday, set aside nearly $6 billion for public investments in the transportation and communication sectors in 2021, and another $2.6 billion for education projects. Other investment areas include manufacturing, health, agriculture, tourism and energy.
Under the programme, Turkey’s Transport and Infrastructure Ministry will receive some $2 billion, while the State Hydraulics Works (DSI) will receive $1.8 billion and the Highways Directorate $1.75 billion.
President Tayyip Erdogan, who has been in power for nearly 20 years with five consecutive election victories, had until 2018 enjoyed steady annual growth of around 5% fuelled by cheap foreign credit and “mega projects” ranging from bridges and tunnels to highways, hospitals and other construction.
(Reporting by Tuvan Gumrukcu and Ebru Tuncay; Editing by Kirsten Donovan)
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Watching the markets with an eye to the main chance, Raymond James strategist Tavis McCourt sees both risk and opportunity in current market conditions. The opportunity, in his opinion, stems from the obvious factors: the Democrats won both Georgia Senate seats in the recent runoff vote, giving the incoming Biden Administration majority support in both Houses of Congress – and increasing the odds of meaningful fiscal support getting signed into law in the near term. More importantly, the coronavirus vaccination program is proceeding, and reports are showing that Pfizer’s vaccine, one of two approved in the US, is effective against the new strain of the virus. A successful vaccination program will speed up the economic recovery, allowing states to loosen lockdown regulations – and get people back to work. The risks are also coming from the political and public health realms. The House Democrats have passed articles of impeachment against President Trump, despite the imminent natural closure of his term of office, and that passage reduces the chances of political reconciliation in a heavily polarized environment. And while the COVID strain is matched by current vaccines, there is still a risk that a new strain will develop that is not covered by existing vaccinations – which could restart the cycle of lockdowns and economic decline. Another risk McCourt sees, beyond those two, would be a sharp rise in inflation. He doesn’t discount that, but sees it as unlikely to happen soon. “…product/service inflation is only really a possibility AFTER re-openings, so the market feels a bit bullet proof in the very near term, and thus the continued rally, with Dems winning the GA races just adding fuel to the stimulus fire,” McCourt noted. Some of McCourt’s colleagues among the Raymond James analyst cadre are keeping these risks in mind, and putting their imprimatur on strong dividend stocks. We’ve looked into Raymond James’ recent calls, and using the TipRanks database, we’ve chosen two stocks with high-yield dividends. These Buy-rated tickers bring a dividend yield of 7%, a strong attraction for investors interested in using the current good times to set up a defensive firewall should the risks materialize. Enterprise Products Partners (EPD) We’ll start in the energy sector, a business segment long known for both high cash flows and high dividends. Enterprise Products Partners is a midstream company, part of the network that moves hydrocarbon products from the wellheads to the storage farms, refineries, and distribution points. Enterprise controls over 50,000 miles worth of pipelines, shipping terminals on Texas’ Gulf coast, and storage facilities for 160 million barrels oil and 14 billion cubic feet of natural gas. The company was hurt by low prices and low demand in 1H20, but partially recovered in the second half. Revenues turned around, growing 27% sequentially to reach $6.9 billion in Q3. That number was down year-over-year, slipping 5.4%, but came in more than 6% above the Q3 forecast. Q3 earnings, at 48 cents per share, were just under the forecast, but were up 4% year-over-year and 2% sequentially. EPD has recently declared its 4Q20 dividend distribution, at 45 cents per common share. This is up from the previous payment of 44 cents, and marks the first increase in two years. At $1.80 annualized, the payment yields 7.9%. Among the bulls is Raymond James’ Justin Jenkins, who rates EPD a Strong Buy. The analyst gives the stock a $26 price target, which implies a 15% upside from current levels. (To watch Jenkins’ track record, click here) Backing his bullish stance, Jenkins noted, “In our view, EPD’s unique combination of integration, balance sheet strength, and ROIC track record remains best in class. We see EPD as arguably best positioned to withstand the volatile landscape… With EPD’s footprint, demand gains, project growth, and contracted ramps should more than offset supply headwinds and lower y/y marketing results…” It’s not often that the analysts all agree on a stock, so when it does happen, take note. EPD’s Strong Buy consensus rating is based on a unanimous 9 Buys. The stock’s $24.63 average price target suggests an upside of 9% from the current share price of $22.65. (See EPD stock analysis on TipRanks) AT&T, Inc. (T) AT&T is one of the market’s instantly recognizable stock. The company is a member in long standing of the S&P 500, and it has reputation as one of the stock market’s best dividend payers. AT&T is a true large-cap industry giant, with a market cap of $208 billion and the largest network of mobile and landline phone services in the US. Its acquisition of TimeWarner (now WarnerMedia), in a process running between 2016 and 2018, has given the company a large stake in the mobile content streaming business. AT&T saw revenues and earnings decline in 2020, under pressure from the corona pandemic – but the decline was modest, as that same pandemic also put a premium on telecom and networking systems, which tended to support AT&T’s business. Revenues in 3Q20 were $42.3 billion, 5% below the year-ago quarter. On positive notes, free cash flow rose yoy from $11.4 billion to $12.1 billion, and the company reported a net gain of 5.5 million new subscribers. The subscriber growth was driven by the new 5G network rollout – and by premium content services. The company held up its reputation as a dividend champ, and has made its most recent dividend declaration for payment in February 2021. The payment, at 52 per common share, is the fifth in a row at current level and annualizes to $2.08, giving a yield of 7.2%. For comparison, the average dividend among tech sector peer companies is only 0.9%. AT&T has kept its dividend strong for the past 12 years. Raymond James analyst Frank Louthan sees AT&T as a classic defensive value stock, and describes T’s current state as one with the bad news ‘baked in.’ “[We] believe there is more that can go right during the next 12 months than can get worse for AT&T. Throw in the fact that shares are heavily shorted, and we believe this is a recipe for upside. Large cap value names are hard to come by, and we think investors who can wait a few months for a mean reversion while locking in a 7% yield should be rewarded for buying AT&T at current levels,” Louthan opined. In line with these comments, Louthan rates T an Outperform (i.e. Buy), and his $32 price target implies room for 10% growth from current levels. (To watch Louthan’s track record, click here) What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 7 Buy ratings, 6 Holds and 2 Sells add up to a Moderate Buy consensus. In addition, the $31.54 average price target indicates ~9% upside potential. (See AT&T stock analysis on TipRanks) To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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