As noted in the previous entry, there are several governmental agencies playing key roles in a M&A transaction.
The Ministry of Commerce (MofCOM) and the State Development and Reform Commission (SDRC) also known as National Development & Reform Commission (NDRC) are the PRC Government agencies with the primary responsibility for supervising foreign-related M&A transactions. However the MofCOM is the agency with the most important role in the M&A process. In fact the Ministry of Commerce has the primary responsibility for supervising foreign-related M&A transaction, and it will be involved in all types of M&A transactions. It is China’s primary foreign investment regulator and approval authority. (Please note that “concentrations” are revised by the Anti-monopoly bureau of the MofCOM, web-site:
http://english.mofcom.gov.cn/departments/fldj2/
) The recent amendments to the M&A regulation have strengthened its hold over the transaction process and its right to review transactions.
The SDRC (or NDRC), on the other hand, is responsible for both approving the foreign investment project application and supervising the restructuring of State-owned enterprises. This agency plays an important role in verifying foreign investment projects.
The SASAC, which has supervisory authority over State-owned assets, plays a significant role in transactions targeting State-owned enterprises and assets. This body monitors transaction values and payment schedules. It also participates in approving the transaction, and may also act as the vendor through one of its designated agencies or companies.
The China Securities Regulatory Commission (CSRC), which is responsible for monitoring and regulating China’s capital markets, will be involved in transactions targeting listed companies. As listed company acquisitions become more common, this agency will play a greater role in the M&A process. Other specialized administrative agencies may be involved depending on the nature of the transaction and the targeted industry sector. For example, the approval of the ministry of Information Industry may be required for certain acquisitions targeting the consumer electronic sector.
Then the State Administration of Foreign Exchange (SAFE), which has supervisory authority over foreign exchange flows and domestic offshore investment, will be involved in a transaction when certain types of consideration are used (i.e. share, in transactions involving the so called “share swap”) and when certain transaction structures are employed. The SAFE will play a greater role in M&A transactions as more PRC companies make investments abroad and more companies undertake offshore restructuring to access foreign capital.
The MofCOM and the State Administration of Taxation (SAT) have issued a series of rules to stimulate and clarify foreign-related M&A activities in China. These rules include a regulatory framework for equity and asset acquisitions. The new enterprises resulting after the M&A transaction, or after the restructuring will be subject to the new enterprise income tax law (Income Tax Law, available at the following web-site:
http://www.lehmanlaw.com/
).
In dealing with these agencies (government bodies), it is important to remember that the government is not a single unit. Different agencies have different functions; furthermore, the support of one agency does not necessarily imply the support of another, thus the national and local authorities may hold divergent views on an issue. It must be stressed that in a M&A transaction, it is very important to monitor the entire process, informing the relevant agencies of the steps already concluded in order to obtain all the necessary approval in the right sequence.
It is evident that in China the success of an M&A transaction is more complicated than in the EU where there are not so many agencies involved. However, the Chinese legal framework regulating these transactions has become more predictable and clear. Some inconveniences and delays are possible, but only monitoring the entire process, involving local experts and understanding the Chinese way of conducting business can assure the success in such a transaction.
Cristiano Rizzi
A couple of months ago the MofCOM held a special press conference on “anti-dumping work progress in 2012”. Shang Ming, the Director-general of the Anti-monopoly Bureau of the Ministry of Commerce and Director of the Office of the Anti-monopoly Commission of the State Council attended the press conference and took reporters’ questions. Conference minutes are as follows:
http://search.mofcom.gov.cn/swb/recordShow.jsp?flag=0&lang=1&base=iflow_01&id=english201301085130141&value=(mergers%20and%20acquisitions)