China should reconsider some of its new regulations and policies
concerning cross-border mergers and acquisitions that were introduced on
9 November 2006 by the National Development and Reform Commission,
according to a
new OECD report [China's CB M&A
regulations.pdf].
The
2006 regulations, for example, add a new screening requirement on
mergers and acquisitions (M&As). It applies to foreign investors buying
a company that is involved in a major industry, may have an impact on
national economic security, or may result in the transfer of a famous
trademark or traditional brand.
In its analysis, the OECD recommends the Chinese authorities clarify how
these new procedures will be applied, in particular by listing sectors
qualifying as “major industry”, defining “national economic security”,
and explaining the criteria for identifying “famous” trademarks and
“traditional” Chinese brands.
China should also reduce the number of stages required in examination
and approval procedures for foreign companies involved in M&As. The 2006
Regulations appear to make the examination and approval process for such
deals more complex. They should instead be made more transparent,
clearer and simpler.
The report notes that, in several areas, the 2006 Regulations improve on
previous policies.
They increase corporate transparency by requiring parties to a
cross-border acquisition to disclose whether or not they are affiliated
with each other and, if they are under the common control of the same
entity, to provide additional information regarding the purpose of the
acquisition and whether the appraisal results conform to fair market
value.
They also make specific and detailed provision for the use of
special-purpose entities overseas by Chinese domestic firms making
acquisitions in China—an important addition in view of the generally
unrecorded but widespread practice of “round-tripping” by Chinese
companies seeking to benefit from incentives offered to foreign
investors.
Further information can be obtained at:
http://www.oecd.org/daf/investment
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