There is no doubt that the role China is going to play in the near future at international level is going to growth in importance, and its influence on the rest of the world will become more evident. Not only its economic and financial power are having an impact on the markets all around the world, but also the wise leadership is developing a modern, harmonious and high income society, (as described by the World Bank: Report by the World Bank:
“China 2030 – Building a Modern, Harmonious, and Creative High-Income Society,”
2012, International Bank for Reconstruction and Development/International Development Association of The World Bank), which will help the government in maintaining its power granting to a population of more than 1.3 billion people a better standard of life, contributing at the same time in reanimating and revitalizing the global economy. In this globalized world China is becoming every day more integrated and an unchangeable player who will of paramount importance also for the success of a “green sustainable development.” All these expectations are reflected in the 12
th
Five Year Plans, with its focus on quality of growth. Naturally, this improved “quality” in investments will be replicated with regard to cross-border operations, and will not only interest the local market.
Mergers and Acquisitions (M&A), and Takeovers are the new forms of investment foreign investors are considering to enter China, but they are also the same instruments Chinese business people are using to expand their influence abroad.
Even though complicated, it has clearly emerged that
M&A
and
Takeovers
are the most effective and efficient ways to currently enter the Chinese market.
Today I’d like to introduce the theme which has to be further discussed. However, it is a matter of fact that Chinese deal activity in this sector, namely “M&A”, both inbound and outbound, has been a key driver of the global M&A rebound in 2010, 2011 and 2012.. Analysts said that domestic strategic M&A activity is expected to increase in industries previously only accessible to State-owned enterprise. Meanwhile foreign investors are expected to re-enter the market at volumes last seen before the financial crisis.
It seems Chinese authorities are accelerating the process to allow overseas companies to float shares in the domestic A-share markets as a way to ease and facilitate inflows of new investments and to give Chinese investors new room to allocate their money.
By 2006 China revised and made its M&A laws more precise with its
Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
(more generally referred to as the
M&A Regulations 2006
) . These new regulations allowed more sophisticated ways to enter the Chinese market, like share swaps, and showed China’s slow but steady progress in liberalizing its legal regime. In particular, the Chinese legislator has recently enacted and updated a new legal framework regulating
M&A
transactions which seems to respond well to the needs of international investors, as to attract investments needed to sustain and foster the Chinese economy. Thanks to these more precise requirements and rules, it is easier than ever to invest in China.
One major effect of the
M&A Regulations 2006
is the valuation requirements for all types of eligible targets. It is worth noting that based on the
Regulations
, only Chinese domestic companies organized in the form of a limited liability company or a company limited by shares regulated by the PRC Company Law are directly qualified to be the targets of an
equity interest M&A
transaction
involving foreign investment. Other entities such as
wholly people-owned enterprise
or
collective-owned enterprises
are not properly structured and prepared to directly introduce foreign investors in an equity interest acquisition.
Foreign companies wishing to enter the Chinese market can opt for the
takeover
of a listed company. With this method the establishment of a presence is immediate.
Along with other laws and regulations mentioned before, the
Measures for regulating Takeovers of Listed Companies
(better known as “Takeovers Code”) sets up the most comprehensive legal framework for takeovers of Chinese listed companies. The Takeovers Code represents the continued efforts of the Chinese government to develop a modernized regulatory system for takeovers. The ongoing revisions are to suit and facilitate the new environment whereby the national economy is facing strategic restructuring. However we will discuss its content more in details in other occasion. The fact here is that foreign investor interesting in investing in the local “bourses” should become more familiar with the functioning of them. (More information on the Shangai Stock exchange available at:
http://chinastockventure.com/2009/12/shanghai-stock-exchange/
.
Now, as the economic reform proceeds, the Chinese government has been making great efforts to gradually solve the problem of market segmentation, with a view to bring the market more in line with international norms and standards. Therefore, control transactions are now becoming more technically feasible.
– CRISTIANO RIZZI