In the news: Marriott counterbids Anbang for Starwood, China reforms its electricity pricing system and the U.S. cuts ZTE some slack

China Outbound Investment Guide 2015: United States
Opening the gates for outbound investment

China expands electricity pricing reform

China will expand its pilot power transmission and distribution pricing reform to 12 more provincial power grids and one regional network as it further opens up the electricity market. The National Development and Reform Commission (NDRC) will include Beijing, Tianjin, Chongqing and Guangdong in the program, which was first rolled out in Shenzhen in 2014. It was then launched in Inner Mongolia, Anhui, Hubei, Ningxia, Yunnan and Guizhou last year. The objective is to separate the price of electricity transmission and distribution from that of sales, which allows the market to have a greater say in determining the final rate. China's state-controlled pricing system has largely been blamed for the general misallocation of resources across the sector and for leaving many power plants unprofitable over the years. Grid operating SOEs such as State Grid and China Southern Power Grid, which monopolize the market, set prices, unlike power-generating and sales firms that face more competition. The reform proposes an independent pricing mechanism through which the grid companies will no longer profit from the difference between its costs and sales prices, and will instead charge a state-approved service fee based on its transmission and distribution costs.

U.S. said to lift ZTE's punishment for breaching sanctions

Two weeks after the U.S. government sanctioned Chinese telecom equipment maker ZTE for scheming to export American technology to Iran and other rogue regimes through shell companies, it has cut the firm some slack regarding licensing requirements pertaining to exports, re-exports and transfers. On March 7, the government banned any firm from transferring U.S. technology to ZTE without a special license. ZTE's share trading has remained suspended since that day, and with a significant share of its supply chain reliant on U.S. hardware and software, the penalty appeared to have some teeth. But on March 20, a senior U.S. official credited ZTE with being actively engaged in constructive talks, agreeing to binding commitments with the U.S. and having some licensing restrictions temporarily lifted. The export restrictions and trading bans could impose a heavy cost on ZTE if they stay in place for long, and in a broader sense, could strain U.S.-China relations.

Anbang faces challenge from Marriott in Starwood fight

As Marriott International tries to lock down its acquisition of Starwood Hotels & Resorts Worldwide with a sweetened cash-and-stock bid of $13.6 billion, the onus is on Beijing-based Anbang Insurance Group to increase its $13.2 billion cash offer. The breakup fee has also been increased by $50 million to $450 million. Analysts expect Anbang, which has been aggressive in its recent bids, to come back with a higher offer, though as of Monday the company had not commented on whether it would. A successful purchase by Anbang would mark the largest-ever acquisition of a U.S. company by a Chinese buyer. Skadden, Arps, Slate, Meagher & Flom is representing Anbang and its consortium, Gibson, Dunn & Crutcher is acting for Marriott and Cravath, Swaine & Moore is advising Starwood. It is likely that Anbang will increase its bid, as it looks to obtain trophy Western assets and shift capital outside China. This deal would be significant for either acquirer, because in today's world where data is everything, the control over so much guest information and relationships allows for enhanced targeted marketing and pricing. An Anbang takeover will be subject to CFIUS review, though it will probably get cleared.* The Marriott-Starwood merger has already received antitrust approval in the U.S. and Canada, with pending clearances from the EU and China.

*Same day update: It appears that China could be more likely to reject the deal, not the U.S. The China Insurance Regulatory Commission (CIRC) reportedly “disapproves” both Anbang's outbound acquisitions – Starwood and Strategic Hotels – as the deals would break rules banning insurers from investing more than 15% of their assets abroad. Source: Caixin

China expands electricity pricing reform

China will expand its pilot power transmission and distribution pricing reform to 12 more provincial power grids and one regional network as it further opens up the electricity market. The National Development and Reform Commission (NDRC) will include Beijing, Tianjin, Chongqing and Guangdong in the program, which was first rolled out in Shenzhen in 2014. It was then launched in Inner Mongolia, Anhui, Hubei, Ningxia, Yunnan and Guizhou last year. The objective is to separate the price of electricity transmission and distribution from that of sales, which allows the market to have a greater say in determining the final rate. China's state-controlled pricing system has largely been blamed for the general misallocation of resources across the sector and for leaving many power plants unprofitable over the years. Grid operating SOEs such as State Grid and China Southern Power Grid, which monopolize the market, set prices, unlike power-generating and sales firms that face more competition. The reform proposes an independent pricing mechanism through which the grid companies will no longer profit from the difference between its costs and sales prices, and will instead charge a state-approved service fee based on its transmission and distribution costs.

U.S. said to lift ZTE's punishment for breaching sanctions

Two weeks after the U.S. government sanctioned Chinese telecom equipment maker ZTE for scheming to export American technology to Iran and other rogue regimes through shell companies, it has cut the firm some slack regarding licensing requirements pertaining to exports, re-exports and transfers. On March 7, the government banned any firm from transferring U.S. technology to ZTE without a special license. ZTE's share trading has remained suspended since that day, and with a significant share of its supply chain reliant on U.S. hardware and software, the penalty appeared to have some teeth. But on March 20, a senior U.S. official credited ZTE with being actively engaged in constructive talks, agreeing to binding commitments with the U.S. and having some licensing restrictions temporarily lifted. The export restrictions and trading bans could impose a heavy cost on ZTE if they stay in place for long, and in a broader sense, could strain U.S.-China relations.

In the news: Marriott counterbids Anbang for Starwood, China reforms its electricity pricing system and the U.S. cuts ZTE some slack

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