New China M&A Committee May Not Be Such a Bad Thing
By: Ainsley Brown
In a previous post I covered the announcement of a new panel in China that would review certain mergers and acquisitions (M&A) transactions involving foreign companies and I asked whether this was a signal of a growing hostility in China to foreign investment? I deliberately did not answer my own question, rather using it as a tool to provoke thought and discussion on the subject. Further, I went on to ask: how was this panel any different than ones set up by other governments? (e.g. USA, Canada or UK).
Here again I will give the same answers I did in the first post: China may or may not be growing more hostile to foreign investment but it has the right to screen such investment, especially in strategic or national security sensitive areas, just like other nations. And by the way this may not be such a bad thing for the foreign investor.
How so?
On the surface this new committee looks like yet another hoop that a foreign company has to jump through in order to get a deal done in China. But not so fast, take a closer look.
Here’s a thought: could this new committee have the opposite effect? Rather than being an obstacle to M&A’s, could it actually make the process more transparent, more predictable and dare I say it much easier?
The Chinese already routinely screen M&A’s involving foreign companies, however the system is haphazard and quite opaque. For example deals are often held up or even rejected by officials using China’s competition laws even where there is little or no connection or risk to competition – just ask Coca-Cola about its bid for juice maker Huiyuan in 2009. The use of competition laws in this manner created great uncertainty for foreign investors but function as a catch all backstop for nervous officials wanting to make sure that the central government did not object to the deal on other grounds.
The new committee will remove such pressures on, no doubt grateful, officials who now just have to worry about regulating competition. The new panel ought to sweep the old system aside and replace it with a new rules based system allowing foreign companies to now plan accordingly.
