Entering the Chinese market by way of acquiring a business in China requires strategic planning. Not only do some industries have foreign ownership restrictions, there are several regulatory bodies relevant to inbound M&A in China. Depending on the industry, the size of the deal, and other factors, regulatory approval may be required from half a dozen different bodies. Provincial and municipal governments may become involved, and party officials can also have an impact.
A recent report by BCG outlines some of the main regulatory bodies in China and the timeframe that should be allotted so as to obtain approval. The four main regulators are:
- State-owned Assets Supervision and Administration Commission of the State Council (SASAC): this body approves selling state-owned assets, and takes two to three months to do so.
- Ministry of Commerce (MOFCOM): this body is in charge of antitrust/competition approval, national security reviews, strategic foreign-investor approval, and foreign investor approval. It can take two to nine months to obtain these approvals.
- China Securities Regulatory Commission (CSRC): this body provides approvals for share ownership changes in one to six months, or three to six months for major asset restructuring.
- National Development and Reform Commission (NDRC): this body reviews matters for compliance with industrial and macro-control (e.g. pollution and over-capacity) policies. Approvals can be obtained in one to three months.
Obtaining approvals can be a complex task, but the complexity can be managed simply by anticipating each regulatory body’s interests and concerns:
- SASAC is concerned with selling state-owned assets at a fair price and in a transparent process to avoid public outcry.
- MOFCOM wants to avoid harm to local industries, preserve and grow local brands, ensure that the business of both parties to the transaction is not related to national security, and help Chinese companies expand internationally.
- CSRC is interested in transparency in the process and conformation to procedures, as well as protecting shareholder interests.
- Finally, NDRC ensures compliance with the latest guides on industrial policy and macro-control.
Therefore, companies should have a strategic plan that maps out the regulatory stakeholders’ interests and includes a program of outreach and communications. The outreach program should prioritize local authorities. If local authorities are convinced of the value of a deal, they can be effective allies in the approval process. This will be made easier if both parties to the transaction work together to create a common narrative regarding the deal’s business logic and its social impacts. Other potential allies include industry associations and the media. Both should be the target of outreach. Media may be particularly important if a long-standing and/or well-known Chinese brand is involved.
Although investing in China may seem daunting, careful planning and aggressive outreach can make the process much smoother.
The author would like to thank Annie Tayyab, articling student, for her assistance in preparing this legal update.