Foreign Investors Presence Establishment in China through Takeovers of Chinese Listed Companies - Case Study Example

REGULATION OF FOREIGN INVESTMENT By Students Name Course Professor University State Date Foreign investors’ presence establishment in China through takeovers of Chinese listed companies Globally, mergers and acquisitions have been the standard process through which multinational organizations conduct foreign investment. The investment acted as the only option that foreigners could use to invest in China. One of the ways to enter china’s market is through an M&A a route that has been chosen by a large number of a venture capitalist. In the 80’s and early 90’s joint ventures was the most pervasive type of foreign direct venture that led to a large number of wholly foreign-owned businesses. However, now the boom is on the acquisition of the local companies. As a result, the trodden M&A path is increasingly becoming a typical channel for outside financial specialists to enter the Chinese business sector. It is notable that a large number of foreign companies once they make an investment trough the merger and acquisition they gain a quantum bound in market share as well as a broader supply in significantly fragmented flooded markets. This implies that acquisition of strong regional brands can be achieved for a smaller amount of what it would cost to start up the same company from the ground. The government of China since 2002 has consolidated and introduced numerous laws and regulations who intention has been to stimulate the process of mergers and acquisition. Besides, the China’s economy growth and the liberalization of domestic since after it was accessioned to the World Trade Organization have teamed up to accelerate the process of merger and acquisition in the recent years. The available statistics on mergers and acquisition in China indicates that these transactions are increased by 50% in China particularly in the year 2004 compared to previous years. Some of the notable high profile foreign mergers and acquisitions comprise of HSBC’s 19.9% acquisition of Bank of Communications and Anheuser-Busch’s, and Harbin Brewery Group acquisition. Foreseeably, the M and A activates that continues to offer foreign investors increased method of entering the China market and which will continue to boom in China in the years to come as opposed to other methods Today this form of entry into china’s market is increasingly opting for acquisition and mergers approach where the takeover of a listed company in China shortens the period required for their expansion in this territory. As stated earlier the takeover code was amended in 2002, and it continues to present the china’s government to develop a contemporary acquisitions system. The revisions that are underway are intended to facilitate and suit the novel business environment now that the national economy is facing restructuring. The M and A activates have been viewed by the China’s government as an important driver of the enhanced privatization process to help the companies that are controlled by the state to compete with the foreign international companies operating within China. It is important to note that earlier and until China’s accession to the WTO in 2001 foreigners appeared to receive encouragements from middle kingdom to start joint ventures where mergers and question activate were explicitly discouraged. In the recent days, this trend has changed, and China has made clear moves by drafting numerous new laws and regulations that encourage FDIs and at the same time boost and foster M&A activities. As a result, the SOEs and state shares in listed companies are receiving particular emphasis as well. This evidently shows that the aim is to shunt the enterprises owned by the government into the private sector and retain only a small significance that the government considers important for nationwide security. Foreign investors have managed to set up a presence in China through takeovers of Chinese recorded organizations in that they are favoured by the structure regarding transaction where they have a lot of funds at their disposal. Conducting in-depth studies and research on the China’s local companies is not a big problem to them. The foreign companies also seem to have a solid comprehension of the nearby business operations. Moreover, they have a receptive administration to guarantee that the post-merger reconciliation methods will run easily, with a specific end goal to keep away from waste assets waste assets and to produce the cooperative energies expected to work productively the recently gained substance. In respect to the share classification, foreign investors can be able to acquire shares through a negotiated acquisition. Some other methods facilitating M and A is an open market, private placement, and a block trade transaction. The limitations that existed on foreign companies that intended to invest in China now there is a variety of investments and M, and A is the most favourable and preferable. This form of investment is also economically significant and in line with features of China’s economic landscape. China is a perceived as a land of limitless opportunities by foreign investors. The reason for this is that foreigners can produce, supply their products, put resources into organizations and purchase them out as arranged. Outside venture is turning into a more basic element in the Chinese monetary environment it is obvious that remote financial specialists esteem the conceivable masters being of such hugeness that it merits going into a challenging market. There are three key factors that emerge when it comes to foreign investor wishes to investment in China. The first major factor is on acquiring production factors that make it more efficient compared to the home country. For instance, China has cheap labour and holds a chance drive down the cost of production in a significant way. Another crucial issue is on stringent environmental laws. This may be not one of the key reasons why foreigner investors prefer or enter China’s market. When focusing on the on the efficiency companies that makes investments with the aim of increasing efficiency through the exploitation of the economies of scale and scope advantages. In this aspect, the likely benefit is based on the environmental laws that have a possibility of allowing an all round the clock production which is inconceivable in the nation of origin. Finally, it is the basis of promoting looking for which is a key rationale in organizations expects to set up themselves in China. It is significant to making presence in China today as well as is a planned consideration for the future also. China's administration is giving the M and A procedure a push by not just advancing the exchanges in more normal territories of stock, however in divided divisions like steel and aeronautics. This move by the administration has offered potential financial specialists with a rich field of obtaining targets now that the rebuilding of the state area is highly prioritized. Regulations (including law) limitations and needs to be improved In China, the CSRC is the security regulatory power that is under the state committee which is ordered with the assignment of executing brought together and concentrated controls of China's securities markets. This implies that this regulating body has the powers and jurisdiction over the takeovers of the listed companies and mainly in the sense of taking over head. There is an exclusive establishment from the CSR internal committee and comprises of relevant experts and professionals in mergers and acquisitions zone whose capacity is to give preparatory feelings after exploring the takeover application. As a result, an acquisition code leads to a comprehensive framework for taking overs in China listed companies. It is notable taking over a Chinese organization by purchasing its shares does not inexorably need to see completely the legitimate paranoia of merger and acquisition regulation in China but an entire lot of elements that composes the Chinese bourses. In China transactions involving mergers and acquisition requires approval and examination from the China’s government agencies. Different from other jurisdictions China’s government agencies plays a key role in the transactions involving mergers and acquisitions. There is certain case where an approval M and A transaction may be approved not only the agencies, but this may depend on numerous aspects such as; the industry sector, the projected target, the investment size and the acquired target ownership structure. This kind of approval may not be based on formality, but it can take considerable time and efforts to obtain. In case the enterprise to be involved in a merger and acquisition is listed in the China’s stock market, and approval from CSRC is required. On the other hand in case the enterprise being targeted is in an industry that is regulated then an approval of that particular regulator is required. For example, if the target is a Chinese bank, the china banking regulatory commission approval is required. The M and A related transactions also fall under the sectoral restrictions on the green field investment in China. The Catalogue for the Guidance of Foreign Investment is concerned with the classification of the China’s investment projects. These ratings affect the investment approval procedures and the full foreign shareholding that is permissible under the Chinese law. A large number of Chinese shareholding is authorized in numerous restricted industry sectors. However, in other areas foreign shareholding is not permitted at all. One way to circumvent these restrictions is by entering the market through the mergers and acquisitions. Therefore, in case the target enterprise is within the industry sector where foreign investment is not permitted pursuing the acquisition plan would not be appropriate. This ascertains that the desirable and nature of business of the target enterprise is to structure the mergers and acquisitions transaction. The implementation and structuring of mergers and acquisitions in China may be of the offshore or onshore nature. The most efficient method in case an investment is in China and is held by a particular foreign company it is important and advantageous to keep the whole transaction offshore. This way purchasing the shares of the first company is possible under the foreign jurisdiction laws. Also, no any approval requirement win China will be required unless a particular item such as the name of the shareholder under the Articles of Association of the FIE needs alteration where the approval for the change of such items is much more straight forward, as opposed to that for an onshore Mergers and acquisition. In case a transaction is taking place within China, three general methods are available. Sometimes it is not possible to keep a transaction offshore. Thus an onshore merger and acquisition transaction is unavoidable. A typical merger and acquisition taking place inside China can be consummated through three ways namely assets purchase equity acquisition and statutory merger. The acquisition from preferred would depend on various factors such as the foreign investor having a solid business partner inside China, and the outside financial specialist ability to go into a value securing with the current substance. One critical preferred standpoint of value procurement with a neighbourhood associate is the accessibility of ready indigenous knowledge and networks to enter the domestic market and the help of having one less contender. Nonetheless, contemplations should likewise be given to the variables as the accessible data with respect to the money related and legitimate status of the objective unwavering quality, the government approvals essential, tax concerns depending on the structure and assets transferability. It is important to note that these laws and regulations are being improved as a China’s way of promising market to the foreign investors. However, an investor should be conversant with the challenges convoluted with the market penetration. As indicated by the world Economist Intelligence Unit study a merger and acquisition is likely to fail due to lack of clear understanding of the Chinese market Conclusion China has gained significant ground in the last couple of years in the change of the administrative system for mergers and acquisition transactions. Even though these developments have opened up areas, and widened the permissible acquisitions scope, there are issues that still need to be solved. China seems to be resolute to honour the pledges made to WTO, thus making the future of M&A promising. This is seen as such because of a scope of targets and securing strategies that have been extended, and directions that are turning out to be more organized and institutionalized. It is additionally plausible that China's economy will proceed with the pattern it has appeared over the past year which implies that china’s market will continue expanding and attract new foreign investors. Reference List Huang, H., 2009. Regulation of Foreign Investment in Post-WTO China: A Political Economy Analysis, The. Colum. J. Asian L., 23, p.185. Lardy, N.R., 1995. The role of foreign trade and investment in China's economic transformation. The China Quarterly, 144, pp.1065-1082. Lin, S., 2005. Establishing Presence in China through Merger and Acquisition. Lehman, Lee and Xu, International Legal News, 2(2). Liu, X., Burridge, P. and Sinclair, P.J., 2002. Relationships between economic growth, foreign direct investment and trade: evidence from China.Applied economics, 34(11), pp.1433-1440. Lo, V.I. and Tian, X., 2009. Law for foreign business and investment in China. Routledge. Rizzi, C., Guo, L. and Christian, J., 2012. Mergers and Acquisitions and Takeovers in China: A Legal and Cultural Guide to New Forms of Investment. Wolters Kluwer Law & Business. Tian, X., Lin, S. and Lo, V.I., 2004. Foreign Direct Investment and economic performance in transition economies: Evidence from China. Post-Communist Economies, 16(4), pp.497-510. Read More