China’s Corporate/M&A Overview
A Recap: Corporate/M&A in 2020
The year 2020 witnessed a few black swan events. Though the world’s economy has been overall adversely impacted, China’s economy has been affected to a far lesser extent and stood resilient. In spite of this epidemic and the economic pressure, Chinese companies have performed stably and remained well-organised in corporate M&A transactions, particularly in the areas such as technology, healthcare, energy and TMT. In terms of the geographical distribution of such transactional events, deals happened mainly in Beijing, Shanghai, Zhejiang and Jiangsu.
Among all the range of companies that were active in corporate deals, listed companies had particularly robust performance in 2020. A total number of 86 listed companies that got involved in transactions were reviewed by CSRC’s M&A and Reorganisation Committee, and 71 of them obtained deal approvals, showing a pass rate of 82.56%. The industries involved in those matters included computer and communications, electronics, chemicals, pharmaceuticals, and healthcare.
New Legislations, Rules and Agreements Worth Noting
On September 11, 2020, the Shanghai Stock Exchange issued the “Guidelines for the Application of Self-Regulatory Rules for Listed Companies on the Shanghai Stock Exchange No. 1 – Material Asset Restructuring” and the “Guidelines for the Application of Self-Regulatory Rules for Listed Companies on the Shanghai Stock Exchange Science and Technology Innovation Board No. 1 – Standardised Operation of Listed Companies”. The former integrates and absorbs eight previous rules related to mergers and acquisitions and reorganisation at the exchange level.
On December 28, 2020, the National Development and Reform Commission and the Ministry of Commerce of the PRC issued the “Catalogue of Industries Encouraging Foreign Investment (2020 Edition)”, which came into effect on January 27, 2021. There are 1,235 entries in the new version of the catalogue. Compared with the 2019 version, 127 entries have been added and 88 entries have been revised. The focus of the new catalogue is on adding entries for manufacturing, producer services, and central and western regions, to guide foreign investment, boost confidence in foreign investment, and stabilise the overall performance of foreign trade and foreign investment, and of industrial chains and supply chains. It’s interpreted that there are four-fold purposes here: The first is to further increase the encouragement of foreign investment and expand the scope of it. The second is to further encourage foreign investment in advanced manufacturing to enhance the resilience of important industrial chains and supply chains. The third is to further encourage foreign investment in modern service industries and improve the quality of service industry development. The fourth is to further encourage foreign investment in advantageous industries in the central and western regions to promote coordinated regional development.
On December 30, 2020, China and the EU jointly announced the completion of EU-China Comprehensive Agreement on Investment. The core content of this critical agreement is to ensure that mutual investment is protected, respect intellectual property rights, improve market access conditions for both parties, and ensure fair regulatory procedures for the investment environment. The EU-China Comprehensive Agreement on Investment demonstrates China’s determination and confidence in promoting high-level opening up, and will provide China-EU mutual investment with greater market access, a higher level of business environment, stronger institutional guarantees and brighter prospects for cooperation.
China’s Corporate/M&A Outlook in 2021
An increasing number of merger and acquisition transactions of listed companies is expected: The abovementioned “Guidelines for the Application of Self-Regulatory Rules for Listed Companies No. 1” optimises the structure and simplifies information disclosure requirements for listed companies’ mergers and acquisitions, further facilitates the disclosure of information on mergers and acquisitions and reorganisation of listed companies, reduces the cost of disclosure, and improves the efficiency of mergers and acquisitions.
An increasing number of foreign investments entering the Chinese market through mergers and acquisitions is also forecast: as China continues to open up, it has adopted the foreign investment law and related supporting measures, streamlined processes, provided equal treatment guarantees, expanded the scope of business activities that foreign investment can carry out, and enriched foreign investment capital market channels, etc. In this way, the pace of foreign investment entering the Chinese market through mergers and acquisitions will accelerate significantly.
Mergers and acquisitions concerning cloud-based industries will boom: as the global epidemic continues, cloud-based businesses, whether it is online office, online shopping, online learning, or online consultation, etc., have shown great growth potentials and become an important battlefield for enterprises to compete. Consequently, that opens the door for China’s SaaS and other cloud-based businesses to develop rapidly and the future market size will continue to grow, leading to more merger and acquisition activities in this field.