Acquisitions of Chinese enterprises by foreign companies are increasingly
being challenged amidst a growing mood of "economic patriotism."
former
National Bureau of Statistics Commissioner Li Deshui.
[Xinhua/file] |
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."