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L 5 1 T 0 2 , 1 I , S 3 . V U P Volume 3, Issue 1, 2015 P U T L R Pages 1-233 PEKING UNIVERSITY TRANSNATIONAL LAW REVIEW Volume 3, Issue 1 2015 PEKING UNIVERSITY SCHOOL OF TRANSNATIONAL LAW [email protected] Copyright: Copyright ©2015 by Peking University School of Transnational Law. All rights reserved except as specifically stated otherwise. Unless otherwise noted, articles may be reproduced and distributed, in whole or in part, for educational purposes, including distribution to students, provided that copies: (1) are distributed at or below cost; (2) the author, and “originally published in Peking University Transnational Law Review,” volume, and first page are included, with the statement that all rights are reserved; and (3) Peking University Transnational Law Review is notified of the use. Subscriptions and Back Issues: Peking University Transnational Law Review is published twice a year by Peking University School of Transnational Law. For subscription, please contact us at [email protected]. Obtain back issues from Peking University School of Transnational Law, B216, Peking University, Xili University Town, Shenzhen, Guangdong, China, 518055, or electronically at HeinOnline, http://heinonline.org. Please visit our website at http://stl.pku.edu.cn/academics/peking-university-transnational-law- review/ or by scanning the QR code. © 2015 Peking University School of Transnational Law PEKING UNIVERSITY TRANSNATIONAL LAW REVIEW VOLUME 3, ISSUE 1 2015 Editorial Board Editor-in-Chief ZHANG Junqi Executive Editor Managing Editor CHEN Shenglan ZHONG Xiaozhu Senior Editors DONG Shi LING Tong RUAN Min SONG Yongchen SUN Hui WU Guanhua XIN Junqing ZHANG Xueying Editors DAI Yanli GAO Lei GUO Yufei JIANG Shan LI Jiaxing LI Mengshi LIU Wenyuan PENG Kangzhe SHI Shuxin WANG Biyu WANG Teng WU Youran YANG Yifei YAO Zhihong YU Yajun Faculty Advisors Eric MAO Advisory Board Duncan ALFORD Ray CAMPBELL Mark FELDMAN Stephan JAGGI JIN Zining Sang Yop KANG Steven KARGMAN Douglas LEVENE Philip MCCONNAUGHAY John NIEHUSS Mark ROSENBAUM Francis SNYDER TAN Lei Colleen TOOMEY Stephen YANDLE © 2015 Peking University School of Transnational Law Administrative Support CHEN Keru DAI Zheng GUAN Shangyicheng LIU Nan LIU Qing WANG Wei YANG Rui ZENG Yuchen ZHANG Chenli ZHANG Jing ZHONG Xiaojin ZHU Xiaoli © 2015 Peking University School of Transnational Law PEKING UNIVERSITY TRANSNATIONAL LAW REVIEW VOLUME 3, ISSUE 1 2015 CONTENTS ARTICLES LI Jing, State as an Entrepreneur: A Study of the Investment Contractual Terms and Level of Control of China’s Sovereign Wealth Fund in its Portfolio Firms....... 1 LU Yi, Challenges in China-ASEAN Food Safety Cooperation Governance Through Soft Law .................................................................................................... 141 CHANG Danlin, Increase the Liquidity of Shares in Foreign-Chinese Joint Ventures ............. 156 CHINESE LAW & PRACTICE UPDATES WU Guohua, PENG Jun, WANG Mingkai, WANG Biyu, The Return of VIE-Structured Enterprise to China’s Domestic Capital Market—A Brief Legal Analysis and Other Factors to be Considered ........ 200 © 2015 Peking University School of Transnational Law MAN Yunlong, Policy Above Law: VIE and Foreign Investment Regulation in China ......... 215 INTERVIEW “Theory Without Practice Is Lifeless; Practice Without Theory Is Thoughtless”: A Conversation with Prof. Harold Koh ....................................................... 223 © 2015 Peking University School of Transnational Law State as an Entrepreneur: A Study of the Investment Contractual Terms and Level of Control of China’s Sovereign Wealth Fund in its Portfolio Firms LI Jing* ABSTRACT In recent years, the increasing cross-border investments by sov- ereign wealth funds (“SWFs”) have aroused high-profiled controver- sies, particularly over the strategic motives behind them and the poten- tial control they could exert over target firms. Using a hand-collected dataset consisting of 51 mergers and acquisitions (“M&As”), 5 joint ventures (“JVs”) and 23 fund investments made by China Investment Corporation (“CIC”) from 2007 to the end of 2013, this paper analyzes important direct control rights, such as level of ownership and voting rights, as well as director nomination and board representation, of CIC in its target firms. It is found that while CIC usually holds significant but non-controlling equity stakes in its targets, its voting rights are often restricted in the investment contracts with them; and it is a rule rather than an exception that CIC is generally not represented in targets’ boards. Except for one Chinese company in which CIC is the second largest shareholder, there is no evidence of CIC pursuing shareholder activism by exercising its voting rights or bringing up proposals, either in shareholder or board meetings of the portfolio companies. Although CIC does not seem to have actively exercised its formal control rights, a further examination of the related business dealings occurred pre-and-post CIC investments across the networks of CIC and its targets suggests that practically, it is often not necessary for CIC to possess or use formal corporate governance tools to exert control over them. Rather, there are plenty of opportunities where CIC could still extract indirect private control benefits by virtue of the long-term post- investment relationships with the target firms. These findings question the necessity and efficacy of regulatory proposals forcing SWFs to remain passive in the corporate governance realm by, for example, asking them to suspend their voting rights. Countries hosting SWF investments should thus consider carefully before directing any new regulation at SWFs as a particular group of investors, and guard © 2015 Peking University School of Transnational Law 2 PKU Transnational Law Review Vol. 3:1 against those proposals rushed out of short-term fad or political pres- sure, which may backfire for protectionism in the long run. © 2015 Peking University School of Transnational Law 2015 Investment Contractual Terms & Control of China’s SWF 3 TABLE OF CONTENTS I. Introduction .................................................................................................... 4 II. An Overview of SWFs ............................................................................... 10 A. Cross-Border Investments by SWFs ...................................................... 11 B. Review of Literature on SWF Investment Characteristics and Strategies .................................................................................................................... 15 C. The Major Concerns over SWF Investments ......................................... 18 III. China Investment Corporation .................................................................. 21 A. An Overview of CIC.............................................................................. 23 B. CIC’s Strong Connections with China’s Government ........................... 27 IV. Data and Discussion .................................................................................. 36 A. Data Collection and Description ............................................................ 37 B. General Characteristics of the Investments ............................................ 58 C. Direct Control in CIC’s Investments ..................................................... 64 1. Level of Ownership, Voting Rights, Director Nomination Rights and Board Representation of CIC’s Non-Fund and Non-JV Investments .... 64 2. Direct Control Rights in CIC’s JV Investments and Fund Investments ............................................................................................................... 71 D. Indirect Control of CIC in Its Investment Targets ................................. 79 E. Huijin Investments ................................................................................. 86 V. Conclusion .................................................................................................. 97 © 2015 Peking University School of Transnational Law 4 PKU Transnational Law Review Vol. 3:1 I. INTRODUCTION lthough existing for more than a half century since the 1950s, SWFs have attracted worldwide interest only in A recent years following their involvement in some large- scale cross-border M&A activities and their major capital invest- ments into certain troubled financial institutions in developed countries.1 While one must admit that SWFs are becoming in- creasingly important players in the current international monetary and financial system,2 the rise of significant inflows of govern- ment-owned capital has still aroused heated discussions among both the public and the politicians in recipient countries, which have indicated mixed reactions towards the investments by SWFs, 3 especially those funds from emerging economies. To begin with, the sheer volume of these government-controlled funds, which is already so big for the world to view in awe, has also been growing at an extremely rapid speed. As of 2012, SWFs were estimated to manage over US$5.3 trillion worth of assets, 80% of which were in the hands of developing econo- mies.4 Even during 2007-2011 when the global financial crisis took place, the total cumulative value of SWFs assets rose at a rate of 10% per annum despite losses on individual holdings, compared with a 4% decline in the value of international banking * Li Jing is an assistant professor at Department of Business Law of Tilburg University. Ph.D.