Foreign Mergers And Acquisitions Of Listed Companies In China

Since the policy of reform and opening up established in 1980s, China actively attracted foreign direct investment to promote the economic development. There are mainly two ways for FDI, one is Greenfield Investments, that is, investment in new enterprises; the other is transnational mergers and acquisitions, that is the acquisition of more than 10 percent equity of the original enterprise of the host nation. The main advantages of China to attract foreign investment is that China has cheap labor force, natural resources and the government's preferential policies, which made foreign investors prefer Greenfield Investments rather than foreign capital mergers and acquisitions.From the beginning of the 1990s, with the deepening of reform and opening up, China's enterprise property rights system has been initially established and foreign investors began to explore the way to enter China by stake acquisition. Due to the policy uncertainty and imperfect laws, also because of the advantages of equity investment are not in place, the acquisition by foreign investors at this stage was inactive. After China's entrance to the WTO, the much clearer and open foreign capital acquisition policies facilitated the process. Also the strengthening of the competitiveness of domestic enterprises and the increasingly matured property market make equity investments advantaged. Foreign capital gradually accelerated the pace of mergers and acquisitions of domestic enterprises, whose impact to the market environment began to attract attention.At the same time, China's securities market was undergoing continuous improvement and the group of listed companies becomes the backbone of economic development. Since 2002, foreign capital mergers and acquisitions of China's outstanding listed companies have become increasingly active involving wide industry scope of listed companies, increasingly flexible acquisition approach and the growing merger scale. The potential impact on China's listed companies by foreign capital mergers and acquisitions has become the focus of attention of all parties.This paper analyzes the motivation, trends and characteristics of foreign capital mergers and acquisitions of China's listed companies. It thinks the new round of foreign capital mergers and acquisitions has three important features: firstly, stock-holding merger and acquisition becomes the mainstream; secondly, strategic merger and acquisition is the main direction; thirdly, financial capital has gradually become the important force in the merger and acquisition. Based on the analysis, the paper illustrated two representative cases of foreign capital mergers and acquisitions: the merger and acquisition of financial sector listed company Shenzhen Development Bank by foreign financial capital NewBridge Investment and the merger and acquisition of manufacturing sector listed company Supor by foreign industrial capital SEB.This paper further analyzes the potential problems that may resulted from the new round of foreign capital mergers and acquisitions: firstly, strategic foreign capital mergers and acquisitions may lead to an over-concentrated market, which may affect fair competition; secondly, the same industry competition and connected transactions resulted from strategic foreign capital mergers and acquisitions may hurt the interests of the public shareholders of listed companies; thirdly, the pursuit of the short-term interests by financial capital may undermine the continuous development capabilities of listed companies. This paper proposed four measures to cope with the adverse impact of foreign capital mergers and acquisitions: firstly, to improve current review mechanism of antitrust focused on the review process and review criteria; secondly, to improve the governance mechanisms of listed companies, in particular the internal supervision and restraint mechanism; thirdly, to improve the market mechanism focused on the speed up of the opening of securities market and the realization of the overseas market docking; fourthly, to improve the regulation for financial capital mergers and acquisitions focused on controlling extent and exit ways.