Several governmental agencies play key roles in M&A transactions. Notably a few agencies have broad authority over such transactions, while others handle specific elements of a transaction. The division of authority between the various agencies is not always clear, and turf battles between agencies are not uncommon. And this can provoke delays and unexpected difficulties in carrying on a M&A transaction. Local agencies may often have expansive views of their delegated authority that are not consistent with the applicable regulations.
China’s Ministry of Commerce (MofCOM) issued two circulars in August and September of 2008 delegating additional authority to provincial officials. The first of these circulars (Notice of the Ministry of Commerce on the Decentralization of Appproval on the Alteration of Foreign-funded Joint-stock Companies and Enterprises, No.50 [2008] of the Ministry of Commerce, or Circular 50 contains an important provision for foreign corporations with a large existing presence in China that wish to expand their operations. In the past, regulations required foreign-invested enterprises (FIEs) approved in the first instance by MofCOM to re-apply to MofCOM to increase their total investments or registered capital. This circular permits many FIEs originally approved by MofCOM to seek approval directly from provincial authorities for increases of registered capital or total investment by any amount less than USD 100 million. Circular 50 also delegates authority to approve the creation or conversion of foreign-funded joint-stock companies. The second of the two circulars (i.e. Notice of the Ministry of Commerce on the Decentralization of the Authority to Approve Foreign-funded Commercial Enterprise, No. 51 [2008] of the Ministry of Commerce, or Circular 51) delegates authority to approve foreign-invested wholesale and retail enterprises. In the past, these enterprises in most cases required central MofCOM approval. After the circular, many foreign-invested retail and wholsale enterprises can be established with the approval of provincial authorities.
“
Circular 50
” refers to the Notice of the Ministry of Commerce on the Delegation of Approval on the Alteration of Foreign Invested Joint Stock Companies and Foreign invested Enterprises [Shang Zi Han No.50 (2008)] issued by MOFCOM effective on 11 August 2008; “
Circular 51
” refers to the Notice of the Ministry of Commerce on the Delegation of Approval Authority on Foreign Invested Commercial Enterprises [Shang Zi Han No.51 (2008)] issued by MOFCOM effective on 12 September 2008
However, dealing appropriately with the agencies is important for ensuring a successful transaction and obtaining local support for ongoing operations. Depending on the industry, ownership structure of the target company (private or State-owned), capital investment, certain agencies will need to sign-off.
These agencies include the following: (i) State-Owned asset Supervisory and Administration Commission (SASAC); (ii) Ministry of Commerce (MofCOM); (iii) State Development and Reform Commission (SDRC) also known as National Development & Reform Commission (NDRC); (iv) State Administration of Taxation (SAT); (v) State Administration of Industry and Commerce (SAIC); (vi) China Securities Regulatory Commission (CSRC) when listed companies are involved; then (vii) State Administration of Foreign Exchange (SAFE).
This just to clarify the question, in the next entry more details will be given on the functioning of these bodies.
However, it must be stressed that in structuring these transaction when there is a change in the equity composition, reference must be made to the Several Regulations on the Change in Equity Interest of Investors in Foreign Investment Enterprise 1997 (available at the following website:
http://www.lehmanlaw.com/resource-centre/laws-and-regulations/foreign-investment/provisional-regulations-on-the-change-of-equity-interests-among-investors-in-foreign-investment-enterprises-1997.html
) if it can mot find in the M&A Regulation 2006.
Cristiano Rizzi