What You Need To Know About China's New M&A Review System

There is hope that China’s new M&A committee, which is being set up to review deals involving foreign companies for national security implications, will make the process of investing in the country simpler and more transparent. At this time, however, details remain sketchy about how the committee will operate.

On February 12, China’s State Council announced that a new committee would review M&A in industries ranging from defence and energy to agricultural production and transportation.

Woon-Wah Siu, a partner in the Shanghai office of Pillsbury Winthrop Shaw Pittman, says that, while little is currently known about the committee, its creation is still a ‘good sign’ for the Chinese market.

‘It’s certainly a positive development as foreign companies will only have to deal with one agency and there will be formal regulations where national security is concerned,’ she tells IR magazine in an email.

Still, it is important to remember that China does occasionally adapt rules to suit its purposes and this will not change following the creation of the new committee, notes Siu. ‘This is China where rules sometimes can be bent (or rather interpreted) to suit priorities, which can change in a short time,’ she says.

‘I tend to agree that this could be a good thing as there will be rules and procedures to go by and no guessing,’ says Mike Wong, CEO and chairman of the Chamber of Hong Kong Listed Companies, also in an email.

‘But there need to be some indicated, better still quantifiable criteria that the commission will adopt. This would allow foreign investors to make an early assessment of the viability of their deals.

‘Guidelines also need to be provided to steer investors through the myriad of authorities within the country so that no time or effort is wasted on pushing the deals to the wrong departments.’

The committee will feature members of the State Council, the Ministry of Commerce, the National Development and Reform Commission (NDRC) and other government departments as required. Deals could be delayed by up to 60 days if it is felt that a ‘special review’ is required.

The new committee will improve the ‘transparency’ and ‘predictability’ of the M&A review system and help promote foreign investment in the country, according to NDRC, which made a statement about the initiative last Wednesday.

China saw more than $25 bn of inbound M&A during 2010, although a number of deals have been blocked in recent years, including Coca-Cola’s $2.4 bn bid for Huiyuan in 2009, and ArcelorMittal’s attempt to take a controlling stake in China Oriental in 2007, reports Reuters.

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