The key rules/laws relevant to M&A in China include:

1. The Company Law (its amendments will come into effect on 1 July 2024, i.e. the New Company Law), company registration regulations and implement rules;
2. The Anti-Monopoly Law (2022 Amendment, i.e. 2022 AML) and related regulations, e.g. Provisions on the Examination of Concentrations of Undertakings (Concentrations Examination Provisions), Provisions of the State Council on Notification Thresholds for Concentrations Between Undertakings (2024 Revision, i.e. New Merger Filing Thresholds Provisions), etc.;
3. Laws and regulations related to foreign investment, including but not limited to the Foreign Investment Law and its implement rules, the Special Administrative Measures for the Access of Foreign Investment (2021 version), the Market Access Negative List (2022 version), Provisions of the Ministry of Commerce on M&A of a Domestic Enterprise by Foreign Investors, etc.;
4. Foreign exchanges laws and regulations of the PRC; and
5. If the target company is a listed company, the Securities Law, Measures for Administration of the Acquisition of Listed Companies, and other rules and guidelines of the China Securities Regulatory Commission.

Generally, the State Administration for Market Regulation (SAMR), especially its anti-monopoly departments are the major regulatory authorities governing M&A activities in China. Regarding outbound investment by Chinese companies and certain inbound investments by foreign investors, Ministry of Commerce (MOFCOM) is the main regulating and approval authority for cross-border M&A transactions. Furthermore, the China Securities Regulatory Commission (CSRC) have authority over any activity that related to an acquisition of a publicly listed company in China.

According to data from various sources such as Refinitiv Eikon, CV Source and PwC , China’s M&A activities decreased 28% to US333.1 billion in 2023, hitting 10-year lows. However, private companies in China defied the trend and increased their outbound investments by 13% in volume and 62% in value compared to 2022.

Despite the fact that the M&A volume in 2023 fell to multi-year lows, the second half of the year did show improvements over the first, rising 12% in volume and 19% in value terms.

The most active sectors in 2023 were high technology, industrials, healthcare and renewable energy, in particular electric vehicles, ESG/energy transition, and semiconductors.

(1) Amendments and developments in laws and regulations related to M&A transactions

The completion of M&A transactions is subject to the legal and government regulatory conditions, the key of which is antitrust scrutiny. The 2022 AML came into force on 1 August 2022, followed by the Concentrations Examination Provisions which took effect on 15 April 2023.

The 2022 AML grants the SAMR the power to review below-the-threshold concentrations where there is evidence that they may eliminate or restrict competition, such as so called “killer acquisitions” that have already attracted antitrust scrutiny in other jurisdictions. Under the Concentrations Examination Provisions, where the SAMR requires the undertakings concerned in these concentrations to make the notifications, they must do so within 120 days if already implemented and take the necessary measures to reduce adverse effects on competition.  The Concentrations Examination Provisions further specify that regarding “implementation of concentration”, factors to be taken into account in the assessment include but not limited to the completion of the registration of the formation or changes in the commercial register, appointment of senior management, actual participation in business decisions and management, exchange of sensitive information with other undertakings and substantial business integration.

Furthermore, the New Merger Filing Thresholds Provisions which came into force on 22 January 2024 have significantly increased the filing thresholds as follows:

1. The combined global turnover of all undertakings participating in the concentration exceeded RMB 12 billion (adjusted from the previous RMB 10 billion) in the preceding fiscal year, with at least two undertakings had a turnover in China exceeding RMB 800 million (adjusted from the previous RMB 400 million) in the preceding fiscal year;
2. The combined China turnover of all undertakings participating in the concentration exceeded RMB 4 billion (adjusted from the previous RMB 2 billion), with at least two undertakings had a turnover in China exceeding RMB 800 million (adjusted from the previous RMB 400 million) in the preceding fiscal year.

(2) International and domestic policies impacted by geopolitical situation

In 2023, the geopolitical competition and regulatory environment between China and the U.S. significantly influenced the cross-border M&A transaction in China. Such trend may persist in the next 2 years.

The U.S. has been refining its approach to managing national security concerns related to foreign investments in the U.S., the review process and the introduction of a new review program for outbound investments, which potentially impact M&A activities involving China. Furthermore, the U.S. has expanded its export control measures on advanced chips and semiconductors to China, particularly those used in artificial intelligence applications, which increased difficulties faced by companies in these sectors.

On the part of China, to facilitate the participation of foreign investors, the State Council issued the Opinions of the State Council on Further Optimizing the Foreign Investment Environment and Increasing Efforts to Attract Foreign Investment in July 2023. It is expected that in 2024, the current negative list for the foreign investment, i.e. Special Administrative Measures for the Access of Foreign Investment (2021 version) will be updated, especially in the fields of financial services, medical and health services, cultural creative industry, and advanced manufacturing industry.

(3) Continuous developments in high technology and renewable energy sectors

With the technological progress in high technology and renewable energy sectors in the past years, especially in the power battery technology and electric vehicle industry, M&A transactions in such areas have significantly increased. Despite that companies in high technology may continue to face pressure due to geopolitical tensions as mentioned above, it is anticipated that M&A activities will continue to growth, in particular driven by state-owned and controlled enterprises.

The key means of effecting the acquisition a publicly traded company in China include share transfer by agreement, tender offer, block trade, directional issues of shares, voting trusts and takeover of the majority shareholder of a publicly traded company. In practice, it is common to adopt a hybrid structure with a combination of the above means, e.g. a combination of share transfer by agreement, directional issues and voting trusts.

In respect of companies incorporated in China, general information is publicly available on the official online platform of from the company registration authority, i.e. Administration for Market Regulation (AMR). Information such as registered capital, paid-in capital, shareholding structure, business scope, annual reports, name of a company’s legal representative, directors, supervisors and general manger can be found on the AMR’s platform. Furthermore, it is possible to conduct winding up searches with the local courts in respect of a target company, which will reveal if any winding up proceedings has been taken or is pending against the target company.

Publicly traded companies in China are required to disclose their audited financial reports and other financial information periodically, and other information as described under the listing rules and disclosure requirements of the stock exchanges, such as material information which may have a great impact on the trade price of shares of a publicly traded company.

In private M&A transactions, a target company is not obliged to disclose any diligence information to a potential acquirer. Having said that, where a due diligence which covers legal, financial and tax matters of the target company is conducted by an acquirer, the selling shareholders will provide answers to the due diligence request list.

In practice, the extent of due diligence usually depends on the specific concerns of an acquirer as well as its time and cost constraints. Generally speaking, a legal due diligence will cover corporate basic information (e.g. registered capital, paid-in capital, business scope, shareholders and management of the target company, etc.), material contracts with key suppliers and key accounts, licenses and regulatory approvals, employment matters and material litigations. Furthermore, in sectors such as high technology and industrials, acquirers prefer to conduct targeted due diligence focusing on issues such as personal information protection and intellectual property rights.

Under the Company Law of the PRC, the shareholders’ meeting is the organ of authority of a company. Accordingly, the shareholder (for a company with the sole shareholder)/ shareholders’ meeting (for a company with two shareholders or more) is the highest decision-making organ of a target company.

There is an exception which is a Sino-foreign joint venture (JV) established before 1 January 2020. A JV was not required to establish a shareholders’ meeting, and the board of directors was recognized as the highest decision-making organ of such JV. Having said that, under the laws and implement regulations related to JVs, transfer of equity of a JV by a shareholder must be agreed by the other shareholders, and unanimously approved by the board of directors of the JV. As the Foreign Investment Law and its implement regulations took effective on 1 January 2020, existing JVs are required to change its highest decision-making organ from the board of directors to the shareholders’ meeting together with its voting mechanism within the five-year transition period, i.e. by 31 December 2024.

In respect of investors which hold preferred equity/shares in a company, they usually have veto rights over material actions of a company such as change of control of the company, M&A transactions, etc. In that case, approvals by such investors on the M&A transaction is necessary in addition to a resolution passed by the majority shareholders.

Under the New Company Law, both directors and controlling shareholders of a company have duties of loyalty and diligence to the company. Directors and controlling shareholders are generally required to take measures to avoid conflict between their own interests and those of the target company, and they must not use their authority to seek improper benefits. Furthermore, directors and controlling shareholders must perform duties in the best interests of the target company with the reasonable level of care normally expected of a management personnel. Accordingly, regarding a potential M&A transaction, directors and controlling shareholders must make decisions and take actions in the best interest of the target company, e.g. treat all competing buyers equally and fairly, do not set unreasonable prerequisites to the transaction, do not provide unfair assistance to a buyer, etc.

In general, employees do not have statutory rights on approval of an M&A transaction. Theoretically, under the Company Law, a company is required to consult is labor union (if applicable) and solicit opinions and suggestions from its employees when making decisions on major issues concerning its business operations, which cover an M&A transaction. However, the above consultation process is usually a formality, approvals by labor union and/or majority employees are not required, and a target company is not obliged to accept opinions of labor union and/or employees, unless the target company is a state-owned enterprise or there are incentive programs granted to employees of the target company. Furthermore, under the New Company Law, a LLC with more than 300 employees must have at least one employee representative either in the board of supervisors or in the board of directors. Such employee representative in the board of supervisors and/or in the board of directors will receive information related to an M&A transaction when the proposed transaction will be reviewed by the board of directors.

M&A transactions are usually subject to closing conditions as agreed by the parties. Typical closing conditions include governmental / regulatory approvals (e.g. approval by MOFCOM for a cross-border transaction), corporate approvals by shareholders and/or board of directors, etc. Furthermore, it is common for parties to waive certain conditions before the closing of an M&A transaction.

Generally, parties are free to agree to any deal protection measures which are applicable. For example, parties can enter into an exclusivity agreement, or an arrangement which include an exclusivity clause binding the target company and its shareholders.

The seller may request an up-front deposit, e.g. deposit to be paid within a period following the date on which the seller provides answers to the due diligence request list. In that case, the buyer can request break fees based on the deposit plus interests calculated on a fixed rate if the transaction is not concluded.

In most of the M&A transactions, consideration as commonly used is cash, share swap (the acquirer issues new equity interests/shares in exchange of equity interests/shares of the target company) or a combination of the two.

In private M&A transactions, except for general information that every company in China filed with the AMR and publicly available on the AMR’s platform as described in question 6 above, no disclosure requirement is imposed on a target specifically.

In public M&A transactions, where an investor only acquires a minority stake, such party is required to publish a Simplified Report on Shareholding Change (Simplified Report) if the shares acquired by it is 5% to 20% of the issued shares of the target company and such shareholding will not result in a change of the control of the target company. The Simplified Report must disclose information including but not limited to:

1. Identity of the investor and all persons acting in concert;
2. The purpose of the acquisition, and whether the investor intends to increase its shareholding in the target company in the next 12 months;
3. Name of the target company, type, volume and percentage of shares as acquired;
4. The time that the shareholding reaches or exceeds 5% of the issued shares, and the method, the sources of funds; and
5. A brief report regarding the transactions of buying and selling the shares through the stock exchange within six months prior to the acquisition.

In the event that an investor acquires a controlling stake in a public company, i.e. more than 20% of the issued shares of the target company, a Detailed Report on Shareholding Change (Detailed Report) is required. The Detailed Report must disclose information including but not limited to:

1. Information of the investor and all persons acting in concert, together with a shareholding structure of the investor;
2. Purchased price of shares, the amount of capital required for the transaction or other payment arrangements;
3. Whether there is any business competition or potential competition between the investors and the target company;
4. Future plans of future changes in the target company’s assets, business, personnel, organizational structure, and articles of association within the next 12 months; and
5. Material transactions between the investor together with all persons acting in concert and the target company within the past 24 months.

In private M&A transactions, no public disclosure of the negotiations is imposed on a target company or the intended seller/purchaser.

In public M&A transactions, an investor is required to inform the target company and disclose the potential transaction if the acquisition shares triggers the threshold as described in question 15 above via the corresponding stock exchange upon the execution of a written agreement, arrangement or other documentation such as a letter of intent, MOU, no matter such document is legally binding. Furthermore, before any execution of the above documentation, in the event that the share price of a listed company fluctuates abnormally as determined by the corresponding stock exchange, such listed company is required to conduct a self-inspection and clarify whether such price fluctuation was caused by any non-disclosed material transaction, e.g. an M&A transaction, and if so, the listed company has to disclose relevant information of the transaction.  Therefore, regarding negotiation on a public M&A transaction, secrecy must be maintained until a written document is signed.

In private M&A transactions, the maximum period for negotiations or due diligence is contractual.

In public M&A transactions, if a listed company is engaged in an M&A transaction which is subject to the requirement on suspension of trading of its shares, such listed company may not suspend trading for more than a period as prescribed by the applicable stock exchange, generally 25 trading days.

In private M&A transactions, parties can determine the purchase price and it is subject to negotiations between the buyer and the seller. However, if the purchase price as agreed by the parties is significantly lower than the net asset price of the target company on the date of the last financial statement, the local tax authority may adjust the purchase price for tax purpose.

In public M&A transactions, if there is a share transfer agreement or block trade for shares in a target company, the transfer price must not be lower than a prescribed percentage (typically 90%) of the company’s closing share trading price on the last trade day prior to the execution of relevant agreements. Furthermore, in the event that a shareholder of the target company is a state-owned enterprise and intends to transfer its shares by an agreement, the transfer price must not be lower than (i) arithmetic mean value of the daily weighted average price over the 30 trading days prior to the date of announcement in which the shareholder proposes to transfer its shares, or (ii) the net asset value as audited in the last financial year, whichever is higher. In case there are special circumstances, e.g. for the purpose of reconstructions, a shareholder which is a state-owned enterprise will repurchase all the main assets of the target company after the transfer of shares is completed etc., the transfer price can be determined by the shareholder based on the reasonable appraisal results made by a qualified agency.

Under the New Company Law, a company limited by shares must not provide financial assistance to an acquirer for purchase of shares in the company or its parent company, unless there is an employee stock ownership plan implemented by the company. Furthermore, there is another exception that for the interest of the target company, as approved by the shareholders’ meeting, or resolved by more than 2/3 members of the board of directors according to the articles of association of the company or authorization by the shareholders’ meeting, the target company may provide financial assistance to an acquirer for purchase of shares in the company or its parent company. However, the total amount of the financial assistance shall not exceed 10% of the issued total share capital.

A limited liability company (LLC) is not subject to the above provision under the New Company Law, as such provision only applies to a company limited by shares. Having said that, as financial assistance to an acquirer may constitute a related-party transaction, approval of the shareholders’ meeting and/or the board of directors of such LLC is still needed.

In the event that a company limited by shares is a publicly listed company, such company is not allowed to provide financial assistance in any forms to an acquirer using resources of the company under the regulations of the CSRC.

Theoretically, in the event that there is a foreign party involved or other foreign element, e.g. the target company is a wholly foreign invested enterprise (WFOE), and both the buyer and the seller are foreign companies, the parties may decide on the governing law of the transaction. However, in practice, if the target company is registered in China including but not limited to a WFOE, the equity/share transfer agreement between the parties and the articles of association of the target company must be governed by the PRC law, otherwise the registration of change of shareholder may not be approved by the local AMRs.

For an outbound M&A transaction where the target company is not incorporated in China, the parties are free to decide on the governing law of the acquisition subject to the laws of the country/region where the target company is located.

Key public-facing documents that a buyer must produce in the acquisition of a listed company include:

1. Simplified Report and/or Detailed Report on Shareholding Change, as described in question 15 above;
2. In the event of a tender offer, an independent financial advisor has to be engaged to issue opinions on the Detailed Report on Shareholding Change;
3. In the event of a tender offer, acquirer shall issue a preliminary announcement on abstract of the tender offer which cover aspects such as the basic information of the acquirer and the target company, the purpose of the acquisition, the price, and quantity, etc. Thereafter, a full text of the tender offer including but not limited to information on the amount of required funds, sources of funds or other payment arrangements, and the conditions of the offer. Within 20 days following the publication of the tender offer report, the board of directors of the target company is required to release a report issued by the board together with a professional opinion of an independent financial advisor.
4. In the event of a share transfer by agreement, acquirer shall issue a preliminary announcement on abstract of the acquisition report, followed by a full text of the acquisition report together with a professional opinion of an independent financial advisor and a legal opinion issued by a lawyer.

In private M&A transactions, the target company needs to register the change of shareholder and other relevant changes of the target company (e.g. change of legal representative and officers) with the local AMR, generally within 30 days from the date of the equity/share transfer agreement. Thereafter, the parties need to register the transfer of equity/share with the local tax authority and pay income tax (if applicable). Furthermore, the target company is anticipated to report the change of shareholder to its bank shortly after such change is registered with the AMR, and go through formalities with the bank for the change of shareholder and change of specimen of the signature of authorized signatory as reserved by the bank (if applicable).

In public M&A transactions, if there is a tender offer, the securities company as entrusted by the acquirer needs to register the transfer of shares and go through the formalities with the local branch of the China Securities Depository and Clearing Corporation Limited (CSDC) within 3 trading days after the purchase period is expired. In the event of share transfer by agreement, after the transfer of shares is confirmed by the corresponding stock exchange, the parties can go through the formalities with the local branch of CSDC for registration of the transfer.

Hostile acquisitions are permitted in China. However, they are not common in the China market.

Directors of a target company have to act in accordance with their duties of loyalty and diligence to the company, including the duty to act in the best interests of the company. In practice, to against a hostile acquisition, directors may take actions such as soliciting a competing offer, issuance of shares and/or convertible securities, selling or purchasing assets of a material amount, etc.

Furthermore, in the event of a tender offer to a publicly listed company, the board of directors of the target company is required to conduct investigations on the qualification credibility and intention of an acquirer, to analysis the offer, to advise the shareholders on whether to accept the offer and to engage an independent financial advisor for professional opinions. Accordingly, the board of directors may produce a report with negative opinions to against a hostile approach.

In private M&A transactions, a buyer has no obligation to make a mandatory or compulsory offer for a target company, unless otherwise stipulated in the articles of association of the company, e.g. tag-along rights granted to certain shareholders.

In public M&A transactions, after an acquirer directly and indirectly obtains 30% of the shares of a target company by means of transfer agreement, voting trusts, indirect purchase and other means excluding a tender offer, if such acquirer intends to acquire more shares of the target company, the acquirer must make a tender offer to all the other shareholders of the company, unless it is exempted under the regulations of the CSRC, e.g. the target company has serious financial difficulties, the reorganization plan as proposed by the acquirer has been approved by the shareholders’ meeting of the target company, and the acquirer has promised to not transfer its interests in the company within 3 years, etc.

Under the New Company Law, minority shareholders enjoy rights as follows:

1. Information rights, i.e. rights to inspect the articles of association, roster of shareholders, minutes of shareholders’ meetings, resolutions of meetings of the board of directors, resolutions of meetings of the board of supervisors, financial and accounting reports and make copies of the above documents. Furthermore, minority shareholders may request to inspect accounting books and accounting documents of the company. Such information rights can also be exercised by authorized representative of the minority shareholders such as auditors or lawyers.
2. If minority shareholders of a LLC vote against specific resolutions, such as non-distribution of profits for consecutive 5 years despite the company has sufficient profits, mergers, divisions, or sale of material assets of the company, etc., such shareholders may request the company to repurchase their equity interest at a reasonable price. Furthermore, in case the controlling shareholder of a LLC abuses its rights which causes severe harm to the interest of the company or other shareholders, minority shareholders may also request the company to repurchase their equity interest at a reasonable price;
3. Shareholders of a company limited by shares which individually or collectively hold more than 1% of the company’s shares may submit a provisional proposal and submit the proposal in writing to the board of directors ten days prior to the date of a shareholders’ meeting; and
4. A company limited by shares is allowed to issue different class of shares such as preferred or subordinated shares, shares with greater or fewer voting rights, etc. Accordingly, minority shareholders of such company may enjoy more voting rights instead of the one-share-one-vote rule.

In private M&A transactions, as described in question 26 above, if minority shareholders of a LLC vote against specific resolutions, and/or a controlling shareholder abuses its rights a minority shareholder may request the company to repurchase all equity interest held by such shareholder.

In public M&A transactions, after an acquirer directly and indirectly obtains 30% of the shares of a target company by means of transfer agreement, voting trusts, indirect purchase and other means excluding a tender offer, if such acquirer intends to acquire more shares of the target company, the acquirer must make a tender offer to all the other shareholders of the company, unless it is exempted under the regulations of the CSRC as described in question 25 above.