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11/12/2006 - 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.
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.
The report can be downloaded at http://www.oecd.org/daf/investment/development
For more information, journalists are invited to contact Ken Davies of the OECD’s Investment Division (tel. + 33 1 45 24 19 74).
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