On August 18, 2017, China’s State Council issued guidelines clarifying rules passed a year ago by the State Administration of Foreign Exchange (SAFE) limiting outbound investments as cover-up to move money out of China.

The new guidelines provide different policies for Chinese companies’ investment overseas, broadly dividing overseas investment into three categories:

• investments in “real estate, hotels, entertainment, sport clubs, [and] outdated industries” are restricted;

• investments in sectors that could “jeopardize China’s national interest and security, including output of unauthorized core military technology and products” and investments in gambling and pornography are prohibited; and

• investments in establishing R&D centers abroad and in sectors like high-tech and advanced manufacturing enterprises that could boost China’s Belt and Road Initiative, and investments that would benefit Chinese products and technology will be encouraged by Chinese outbound regulators.

These guidelines are new and we have to wait and see how they will be interpreted and implemented by regulators. Still, there may be reasons to believe they will have a net positive effect on the China-U.S. M&A market. The new guidelines bring about greater certainty to buyers, lenders and targets on whether a deal will get approved by Chinese regulators.

The volume and size of Chinese outbound M&A is already on an upward trajectory in the second quarter of 2017, as buyers are already getting more acclimated to SAFE rules announced at the end of 2016 restricting the outflow of Chinese capital. Chinese buyers completed 94 deals totaling $36 billion in Q2, compared to the 74 deals totaling $12 billion in Q1. The current Chinese outbound M&A trend, coupled with greater certainty under the new guidelines, is likely to result in more Chinese outbound M&A deals during the last quarter of 2017, as well as in 2018.