What’s driving Chinese investment into Chile?
Latin America in general has experienced a fast rise in investments from Chinese companies during the last decade. The increased investment is especially clear from year 2010 and has accelerated as a result of the Belt and Road Initiative (BRI). The manifestation of this trend suffered a sort of “delay effect” in Chile, but since 2016 we have been witnessing a steady increase of enquiries from Chinese companies in the country and, more importantly, a higher success rate in transactions and a speedier implementation of investment plans.
Most transactions are still Chile-inbound and SOE-driven; approximately 80% of Chinese investment into Latin America are government-related according to a report by the OECD and Atlantic Council. The most high-profile transactions are still in infrastructure and commodities-related sectors, such as mining, energy, agribusiness and food production.
However, in the past years, we have detected an increasing activity and interest from POEs like Huawei, MoBike, DiDi, car manufactures, and other private companies. Interest in technology-related sectors (such as the plan to connect Asia with Chile through a fiber optic cable, in which the giant Huawei has been a key player) has also noticeably increased.
How is Carey positioning itself to help clients capitalise on these opportunities?
Carey has consolidated its status as a leading adviser to Chinese corporates on their operations in Chile and Latin American entities looking to enter China. In recent years, we have acted on some of the most significant matters connecting Chinese and Latin American interests.
The firm has been exploring the Chinese market in situ since 2012, placing great emphasis on understanding the local culture and business practices, and the motivations of China in connection with Latin America,. For that reason, we decided to open a physical presence there and, in 2016, incorporated a subsidiary in Shanghai: Carey Business Consultancy (Shanghai) Limited. Since then, it has become the only full-service Chilean law firm with offices in the People’s Republic of China.
However, we realised that to be successful in China it was critical to establish alliances with the right players in the market. This comprises both local PRC and international law firms that have decades of experience in China. These firms have become strategic partners and a source of mutual referral of work.
These firms can rely on us for cross-border work when they need assistance in Chile or even a coordinator for regional work in Latin America; and, at the same time, we can offer our Chilean (and other non-Chinese, especially Latin-American) clients a strong and diverse network of local experts suitable to their specific needs, that has resulted in a very effective way for assisting them in their internationalisation strategy in Asia.
What are some of the challenges Latin American entities need to be mindful of when engaging with PRC counterparties?
Challenges have decreased considerably and in a very rapid manner. We used to see important language and culture gaps; lack of relevant experience and sophistication during transactions; long
internal approvals; poor cooperation with advisors; among other obstacles. Currently, we would say that the biggest remaining challenge relates to how decision-making is made inside state-owned enterprises and, in general, a lack of understanding on how this type of companies operate, their internal structures, motivations, form of communication, etc. This is an important barrier not just for Latin American entities but also for local regulators.
In addition to these business-related considerations, the most important legal considerations for our clients when dealing with Chinese counterparties refer to environmental, labor, and antitrust matters. However, Chile has a well-known friendly environment towards FDI and, unlike other countries and recent trends, Chinese investment is treated under the same conditions as any other foreign or Chilean investor (i.e., national treatment is granted to FDI investments coming from China or other nations).
Recent experience and representative matters
In recent years, Carey has acted on some of the most significant matters connecting Chinese and Latin American interests. These include advising:
Tsinghua University on the setup of its Latin American Center, incorporated as a foundation in Chile.
Tianqi Lithium Corporation on its acquisition of a 24% stake in Sociedad Química y Minera de Chile (SQM) for over US$4bn.
China-LAC Cooperation Investment Fund on the preparation of a memorandum on antitrust regulations in Chile.
Skysolar on the negotiation of an EPC and O&M contract for the development of a 46MW solar energy plant in the north of Chile.
Industrial Commercial Bank of China, China Development Bank, Bank of China and Ecport-Import Bank of China on a $7bn loan granted to a Chinese mining consortium led by MMG to fund the acquisition and further development of Peru’s Las Bambas copper mine from Glencore.
China Development Bank on the first loan to be granted by a Chinese bank to a Chilean one. In August 2008, Banco de Chile received a three-year US$100m loan from the China Development Bank.