In a global market that grows evermore interconnected, national economic interests and national security interests can be barriers to free enterprise.
But for Greg Liu, ’97, that’s part of the excitement.
As a partner in the corporate department of Paul, Weiss, Rifkind, Wharton & Garrison LLP, based in the firm’s Beijing office, Liu has worked on a variety of cross-border transactions, representing foreign investors in China as well as Chinese entities seeking to make investments and/or acquisitions overseas.
Liu has been involved in several high-profile deals, including Chinese Internet giant Baidu’s $3.4 billion share exchange transaction with Ctrip—a Chinese version of Expedia.
In addition, he worked on Tencent’s joint venture with Groupon in China, and the subsequent merger with Groupon’s rival, FTuan. He also represented Shanghai Shendi Group in a joint venture with Disney to build Shanghai Disney Resort—a $7 billion project that opened in June 2016.
“Every deal is different, and that’s what energizes me about my work,” Liu says. “There are always common problems to solve, but each matter also brings new questions and new risks.”
Some of those new questions are driven by outside influences. In 2000, while working for Sullivan & Cromwell LLP in Hong Kong, Liu was part of the team that prepared the U.S. and Hong Kong IPOs and dual listings of China Telecom and China Unicom, riding the wave of Chinese companies entering the U.S. market. With the passage of the Sarbanes-Oxley Act of 2002, the landscape shifted—as did the nature of Liu’s work.
“At the same time that the regulatory burden in the United States was increasing, other capital markets were becoming more sophisticated with increased liquidity, so a listing only in Hong Kong was sufficient. As the U.S. IPO volume declined, many American firms in China, including Paul Weiss, have focused more on mergers and acquisitions,” says Liu.
And with ongoing U.S.–China tensions surrounding issues ranging from fair trade to currency manipulation to cyberwarfare, Liu notes that many Chinese companies—and their investors—have had a rough ride in the U.S. market. “With the exception of major players like Alibaba, Chinese companies generally don’t have good valuations on the U.S. market,” Liu says. “That’s why the trend in the last several years has been for Chinese companies to seek delisting in the U.S., as opposed to an IPO.”
The Committee on Foreign Investments in the United States (CFIUS) also plays a big role, says Liu. CFIUS, an interagency committee chaired by the Department of Treasury, reviews the national security implications of foreign investments in U.S. companies or operations. Although the committee is not new, it has ramped up its investigations since 2007, when Congress broadened the scope of areas with national security implications. As a result, Chinese companies often face a closed door to the U.S. market.
“The CFIUS approval process is unpredictable and opaque. And because it’s centered on national security, it can be particularly challenging for the Chinese companies to navigate,” Liu says. He points to the recent attempt by a Chinese consortium to buy a lighting-products business that was being spun off by Dutch conglomerate Koninklijke Philips NV. The deal fell apart when CFIUS refused approval. “That shows what can happen with light bulbs, which aren’t something that most people associate with national security concerns.”
Liu says that both sides’ interests can be preserved if the CFIUS process becomes more transparent, and he believes such change is coming.
“Many countries have some kind of national security review process. But those processes need to have clearly defined parameters that are the same for buyers from all countries. Free capital movement is generally a good thing. Taking a nationalistic view of capital and trade flow is not good for anyone.”
On the flip side, regulators in China, especially foreign exchange regulators, are known to add their own wrinkles when Chinese companies seek to acquire interest in American companies.
“When companies are exchanging Yuan for U.S. dollars, it puts pressure on the government’s effort to prevent further currency depreciation against the dollar,” says Liu.
Despite the challenges, and after more than 15 years practicing corporate law in Asia, Liu is an optimist. “I see more and more opportunity for cross-border M&A activities between the U.S. and China. The China market is too large for foreign companies in any industry to ignore, and Chinese companies won’t be content with just staying in China, especially with intense competition and excess liquidity at home,” Liu says.
“Despite all the regulatory issues, M&A volume increases every year, and I think it will continue to do so. The private economy will find a way to overcome the hurdles.”