CHINA: An Introduction to Corporate/M&A (PRC Firms)

Overall, following a series of macroeconomic policy adjustments, the Chinese economy has bottomed out and stabilised in 2024. Unlike in the past, when the focus was primarily on policies specific to certain industries, lawyers involved in mergers and acquisitions (M&A) in China now need to closely monitor changes in macroeconomic policies, capital markets, and international trade policies. This vigilance will help enterprises proactively address the challenges and seize the opportunities presented by an increasingly complex environment.

Although the overall scale and quantity of M&A in 2024 are at a historically low level, with the introduction of several major policies, such as the “Several Guidelines of the State Council on Strengthening Regulation, Preventing Risks and Promoting the High-Quality Development of the Capital Market” (commonly referred to as the “Nine New Guidelines of the State Council”) and the “Opinions of the China Securities Regulatory Commission on Furthering the Market Reform for the Mergers, Acquisitions, and Restructurings of Listed Companies” (known as the “M&A Six Articles”), as well as a series of policies and action plans to support the M&A and restructuring of listed companies in Shanghai and Shenzhen, M&A and restructuring transactions in the Chinese market have shown a new trend of concentration in leading enterprises and listed companies. A notable example of this trend is the acquisition of Haitong Securities by Guotai Junan, which has become the largest absorption merger case in the history of China’s capital market involving dual A+H shares.

According to statistical data reported by CIB Research, as of 15 November 2024, A-share listed companies have disclosed 1,189 M&A deals this year, with a transaction amount exceeding RMB570 billion. The majority of these M&A events have been concentrated in the automotive, machinery and equipment, and basic chemical industries, which represent 12.39%, 9.73%, and 9.73% of total M&A activity, respectively, according to data from the Research Institute of AVIC Securities. In terms of the purpose of these M&A transactions, activities in 2024 have primarily focused on main business operations and industrial cooperation, manifested in asset optimisation, horizontal integrations, and various other objectives such as tax planning, brand expansion, and management-driven interests. Notably, the proportion of M&A events with other purposes has seen a significant increase this year, reflecting the largest growth rate. Regarding the participants in these deals, the amount involved in M&A cases led by local state-owned enterprises has risen significantly from approximately 30% in 2023 to 40.7% in 2024, indicating that these enterprises are becoming increasingly active in M&A and restructuring. Local state capital has emerged as a key driver in the M&A market, showcasing its vital role in capital operations during recent years.

In 2024, significant legislative developments in China’s M&A market have centred around the M&A and restructuring of listed companies. On 4 April 2024, the State Council issued the Nine New Guidelines of the State Council, explicitly encouraging listed companies to utilise M&A and restructuring to improve development quality, while introducing measures to stimulate the M&A market. Additionally, on 24 September 2024, the China Securities Regulatory Commission released the M&A Six Articles, proposing to further strengthen the resource allocation function of M&A and restructuring. These measures support companies listed on the Shanghai Stock Exchange STAR Market and the Shenzhen Stock Exchange ChiNext Market in acquiring upstream and downstream assets, encourage cross-industry M&A by listed companies seeking industrial transformation and growth, and allow listed companies, under certain conditions, to acquire quality but unprofitable assets. They also encourage listed companies to pursue industry consolidation. At the regulatory level, it improves the degree of regulatory inclusiveness in respect of valuations, pricing, commitment arrangements, intra-industry competition, and related-party transactions, while strictly penalising illegal activities such as fraudulent issuance, financial misconduct, and insider trading during M&A transactions. According to Guotai Junan Securities Research, within two months following the release of these articles, 138 listed companies announced M&A plans, representing a nearly twofold increase year-on-year.

In November and December 2024, Shenzhen and Shanghai, respectively, issued action plans to support the M&A and restructuring of listed companies. The Shenzhen Municipal Financial Committee Office released the “Action Plan for Promoting High-Quality Development of M&A and Restructuring in Shenzhen (2025–2027) (Draft for Public Comment)” (the “Shenzhen Action Plan”). This plan outlines twelve specific measures aimed at facilitating these processes. Among the proposed measures are the support for industrial upgrades through M&A, collaboration with Hong Kong's capital markets to connect domestic and international M&A resources, encouragement for listed companies to pursue outbound M&A, and diversification of financing channels for M&A and restructuring activities. The Shenzhen Action Plan aims for a robust M&A market, with the goal of ensuring that, by the end of 2027, the market will remain consistently active. It sets the goal of exceeding 100 M&A transactions and achieving a total transaction value surpassing RMB30 billion.

The General Office of the Shanghai Municipal People’s Government issued the “Action Plan for Supporting M&A and Restructuring of Listed Companies in Shanghai (2025–2027)” (the “Shanghai Action Plan”). This plan aims to promote industry M&A activities led by high-quality listed companies and industry groups. It supports the acquisition of premium but unprofitable assets that either strengthen or extend industry chains and enhance key technological capabilities. Moreover, it encourages listed companies in traditional sectors to pursue cross-industry acquisitions that facilitate industrial upgrading and help establish a second growth curve. In addition, the Shanghai Action Plan outlines provisions for identifying and maintaining a pool of M&A targets, integrating M&A resources, providing post-merger value enhancement, cultivating M&A funds, and offering supporting policies. The Shanghai Action Plan sets a goal for 2027, aiming for a selection of representative M&A cases in key industries to be completed in Shanghai. It targets a total M&A transaction value of RMB300 billion, with activated assets involved exceeding RMB2 trillion. Furthermore, the plan aims to unite three to five professional M&A fund managers with significant industry influence.

From the perspective of foreign investment in M&A, the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2024) and the Measures for the Administration of Strategic Investment Made by Foreign Investors in Listed Companies (2024 Revision), both issued in 2024, have lowered thresholds for foreign strategic investments and expanded M&A channels. Key measures included reducing the scope of foreign investment restrictions (foreign investment restrictions in manufacturing have been “zeroed out”) and allowing foreign natural persons to participate in strategic investments. Moreover, the asset threshold for qualified foreign investors has been lowered and is not limited to overseas assets. Foreign investors are also permitted to conduct strategic investments through tender offers, and the shareholding lock-up period has been shortened from 36 months to 12 months. The requirements for shareholding ratios in strategic investments have been eased as well: the shareholding ratio for private placements has been eliminated entirely, while for transfers by agreement or tender offers, the threshold has been reduced from 10% to 5%. These regulations, which emphasise market-oriented and international approaches, not only enhance the efficiency of domestic M&A but also provide more flexible and diverse tools for foreign investments to deeply engage in the Chinese market, thereby promoting the healthy development of the M&A market as a whole.

With the supportive macroeconomic policies, the maturity of the industry, and the growth of PE and VC institutions, M&A transactions in China have transitioned from exploring scattered opportunities to deeper strategic integration. Many market observers view 2024 as the inception year of horizontal mergers in China. However, in terms of market mechanism soundness, participant diversity, and the richness of financial instruments, China’s M&A market still holds significant room for growth. The establishment of a robust M&A transaction ecosystem will require collective exploration and effort by all market participants.