There’s been a wave of M&A activity in China of late, but will complex regulatory requirements stem the deal flow? Richard Li reports
China’s economic downturn has prompted the stronger market players to swallow up the financially weak. The central government is also encouraging mergers and acquisitions (M&A) of domestic companies with outmoded production capacity, in order to ramp up the nation’s industrial structure.
Adding to this, Manuel Torres Salazar, a partner at Garrigues in Shanghai, believes the launch of a third round of quantitative easing (QE3) by the US government will push more foreign buyers into China. “The launch of QE3 will definitely influence the evaluation and price of assets, which may encourage foreign funds to have more onshore M&A activities [in China] to benefit from RMB appreciation,” he says.
Wang Jing, a Norton Rose partner in Beijing, shares this view of China’s potential for attracting foreign buyers. “It is almost certain that more international brands will turn to China for investment opportunities in certain sectors … mainly because of the increasing purchasing power of Chinese consumers.”
But how easy will it be for foreigners to carry out their purchasing plans? By issuing new draft Administrative Measures for the Approval of Foreign Investment Projects, the National Development and Reform Commission (NDRC) appears to be seeking to restore its long-neglected influence in the approval of foreign investment projects.
And where will that leave the Ministry of Commerce (MOFCOM), the other gatekeeper to monitor foreign investment? Its practice of antitrust and national security reviews has always been a concern for foreign buyers. Besides long-existing problems like a lack of transparency, some recent cases produced complaints that the ministry’s practices differ too greatly from that of other major economies.
But foreign investors, don’t despair. MOFCOM is also developing procedures to streamline its approval process. And some recent cases suggest the ministry may be open to foreign acquisition of prominent Chinese brands. In light of these developments, it’s timely to have a look at what these two gatekeepers are up to.