Will China Curb M&A Enthusiasm?

Wall Street is anticipating President-elect Trump and a Republican controlled Congress to loosen regulations likely to spur M&A activity, as reflected in the surging stock prices of public companies that are expected to conduct M&A deals. It remains to be seen, however, whether this post-election enthusiasm can be sustained through a maze of regulatory approvals in the US and abroad. In particular, China may present obstacles to concluding major deals.

China’s State Administration for Market Regulation (“SAMR”) has the ability to review and potentially block any Chinese component of global M&A deals. The SAMR takes into consideration the interests of major stakeholders in China, as well as the country’s broad national interest, when approving deals. So far, the SAMR has approved the vast majority of deals, albeit sometimes with conditions imposed. In 2023, the SAMR received 797 applications and approved some 90% under a simplified approval procedure. But the SAMR may behave differently when complex deals or mergers that threaten national interests are under consideration. This could occur if there an escalation in the Sino-US trade war which results in pushback from Beijing. Evidence of this can be seen from past deals where the SAMR granted approval but required the merged foreign company to continue to supply products to China on fair and non-discriminatory terms. China has also delayed approval for up to a year after foreign regulators gave their approvals on the same deal. Furthermore, potential deals in sectors considered vital to China’s national interest, such as semiconductors, will be heavily scrutinized by Chinese regulators. 

Given Trump's threat of increased tariffs and ending of China’s Permanent Normal Trade Relations, certain industries could also be presented with the challenge of moving a portion or all of their Chinese operations to other countries. Hence, pre-deal strategizing and proper due diligence to untangle the business operations of multinationals in China will become ever more important to seek regulatory approval from the SAMR and other authorities.

Many foreign multinationals grew in China through joint ventures with Chinese partners or via acquisitions of domestic companies. An in-depth due diligence will be crucial to unpack embedded historical problems caused by non-compliant local partners, which could resurface in problematic ways when divesting Chinese subsidiaries or setting up new joint ventures.