BIZCHINA / Weekly Roundup
Takeover hostility
By DAI YAN (China Daily)
Updated: 2006-04-12 08:43
Acquisitions of Chinese enterprises by foreign companies are increasingly
being challenged amidst a growing mood of "economic patriotism."
The former National Bureau of Statistics Commissioner Li Deshui is one of
the most prominent of the critics. During last month's session of the
National People's Congress(NPC), the country's law-making body, he warned
that the acquisition of promising local companies by multinational
investors was creating monopolies in a number of sectors.
"If China lets multinationals' malicious mergers and acquisitions go
ahead freely, China can only act as labour in the global supply chain,"
said Li, worrying that Chinese brands and the innovation ability of the
national industry would disappear gradually and core parts, key
technologies and high added value of China's leading enterprises might be
completely controlled by multinationals."
His pointed criticism generated wide media exposure and created fears of
a foreign mergers and acquisitions (M&A) threat.
Several factors have contributed to the climate, including national
pride, lingering resentment over Chinese oil giant CNOOC's failed US$18
billion bid for Unocal last year, and a protectionist resurgence, partly
in response to a growing protectionist sentiment in the United States and
Europe against low-cost Chinese exporters.
"These emotions about foreign capital are the last thing we want," says
Fei Guoping, director of the China Mergers & Acquisitions Association
under the All-China Federation of Industry and Commerce.
"Such unwarranted enthusiasm will only hurt the country's economic
development. What we want is to make sane progress in building an M&A
review system based on national economic security," says Fei, who is the
chief writer of a proposal on such a review system submitted by the
federation to the NPC last month.
While the Chinese Government welcomes foreign investment, through M&As or
otherwise, the explosive increase in FDI has given multinationals a
degree of market power that many Chinese find worrying and potentially
damaging to the development of domestic enterprises.
However, if the worry is directed at the scale of foreign investment, it
is missing the target, says Fei, who believes the key point is the
absence of a law and a government body to look at possible M&As that may
hurt national security.
In China, some department regulations involve M&A reviews and several
government bodies have the power to look at parts of the M&A cases.
The Ministry of Commerce (MOFCOM)) and the National Development and
Reform Commission (NDRC) are entrusted with the primary responsibility of
supervising foreign-related M&A transactions. The former is the principal
foreign investment regulator while the latter is responsible for
approving the foreign investment project application.
The nature of the target may lead to the involvement of other regulators.
The State-Owned Assets Supervision and Administration Commission plays a
significant role in transactions involving State-owned enterprises. The
China Securities Regulatory Commission, which is responsible for
monitoring and regulating China's capital markets, will be involved in
transactions linked to listed companies.
There is a higher level of government participation in M&As in China than
is typical in other countries, says an official from skincare company
L'Oreal, which acquired local brand Mininurse.
"Despite the recent relaxation of foreign investment restrictions,
pervasive approval requirements remain a distinctive feature of M&A
transactions in China," says the official, who did not want to be named.
While the complicated M&A review process often scares away potential
investors, few efforts are made during the process to check whether a
monopoly is created or whether the deal threatens national security, Fei
says.
"The establishment of an M&A review system and an authority will be a
base line, though it may not be frequently used."
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