On March 7, 2014, China’s State Council released the Opinions on Further Optimizing the Market Environment for Mergers, Acquisitions and Reorganizations (the Opinions),  which   call   for   the optimization of the policy and market environment for mergers, acquisitions and reorganizations by PRC companies (with a primary focus on mergers, acquisitions and reorganizations by PRC listed companies).

Key Policy Changes

Below are a few directions and key policy changes called for by the Opinions:

• Acceleration of the Reform of Approval Systems. The Opinions call for a reform of China’s approval system for mergers and acquisitions (M&A) to narrow the scope of approval items, to simplify approval procedures and to delegate certain approval powers to lower-level regulators.

• Easing of Restrictions on Private Capital Market Entry. The Opinions call for the reduction of restrictions on market entry by allowing entry of private capital to industries other than those expressly prohibited, opening up the areas of competitive businesses of monopolized industries and supporting participation of private capital in state-owned enterprises through share transfer, capital increase or joint venture.

• encouragement for Use of Diverse M&A Transaction Structures. The Opinions encourage the use of various transaction structures to raise capital by qualified enterprises, including the issuance of shares, corporate bonds, debt financial instruments of non-financial enterprises and convertible bonds. The Opinions also note that qualified enterprise may issue preferred shares or convertible bonds to serve as the consideration for M&A or restructuring activities.

• Relaxation of Regulation on M&A by Chinese Listed Companies. The Opinions call for the abolishment of (i) the minimum quantity of shares required to be issued by the listed company in connection with mergers; and (ii) the performance commitment requirement in connection with the acquisition by the listed company of a non-affiliated company.

• Strengthening Policy Support in Multiple Areas. The Opinions also call for the strengthening of support for M&A activities from fiscal, tax, land use and personnel relocation perspectives. One example is the increase in funding to guide the transformation and upgrade of enterprises through M&A and restructurings activities.

Conclusion

The Opinions will impact M&A and restructuring activities and relevant approval regimes. It is important to note, however, that the Opinions include mostly broad policy principles with specific instructions in certain limited aspects. Further guidance and detailed implementing rules still remain to be drafted and issued  by  the relevant ministries and commissions under the State Council, such as Ministry of Commerce, National Development and Reform Commission and China Securities Regulatory Commission.