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Conflict of Goals in Takeover Law: The Impossible Regulatory Alignment Between UK and China

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Takeover Law in the UK, the EU and China
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Abstract

In this chapter, the takeover market is used as an example to examine the extent to which regulatory alignment between the UK and China is possible. The focus is on the role of financial intermediaries in the two markets and how they may influence the governance model of transfer of corporate control by an open offer to the shareholders of the target company (a takeover bid). This chapter argues that the policy goals are very different, making regulatory alignment difficult to be realised. There are differences between the UK and China in their economic model, ownership structure and institutional arrangements, which is reflected in the differences in the interests served by takeover law in the two regimes. The design of the framework for takeover law in the UK empowers financial market participants, so as to attract capital to the London markets. In contrast, China’s takeover law is mainly aimed at facilitating industrial restructuring and creating globally competitive national companies (national champions). Hence, the UK’s shareholder-centred takeover model, with a strong focus on financial intermediaries and international investors, could not easily be replicated in China. However, the UK model could provide lessons for China as it develops its takeover market, extends its market structure reform, develops independent financial intermediaries and attracts an increasing number of investors.

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Notes

  1. 1.

    Armstrong (2018).

  2. 2.

    European Parliament (2018).

  3. 3.

    Tella (2019).

  4. 4.

    Armour and Skeel (2007).

  5. 5.

    Huang (2019).

  6. 6.

    For introduction of facts of the Vanke takeover battle (by Baoneng).

  7. 7.

    Armour and Skeel (2007).

  8. 8.

    Lee (2017).

  9. 9.

    Xi (2015).

  10. 10.

    National Statistics (2016).

  11. 11.

    Lee (2017).

  12. 12.

    The Takeover Panel (2020).

  13. 13.

    Takeover Code, General Principle 5, Rule 24.16 and Rule 25.8.

  14. 14.

    Bodnaruk et al. (2009).

  15. 15.

    Ibid.

  16. 16.

    Ibid.

  17. 17.

    Liu and Lou (2016).

  18. 18.

    Ibid.

  19. 19.

    Ibid.

  20. 20.

    Takeovers Code, Rule 19.

  21. 21.

    Takeovers Code, Rule 24.8.

  22. 22.

    Takeovers Code, Rule 24.10.

  23. 23.

    Takeovers Code, Rule 3.1 and Rule 26.3.

  24. 24.

    Takeovers Code, Rule 3.3 and Rule 16.2.

  25. 25.

    Takeovers Code, Rule 25.2 (a).

  26. 26.

    Kershaw (2016).

  27. 27.

    Servaes and Zenner (1996).

  28. 28.

    Takeovers Code, Rule 9.5.

  29. 29.

    Han (2017).

  30. 30.

    Armour et al. (2002a, b).

  31. 31.

    National Bureau of Statistics of China (2018).

  32. 32.

    Xi (2006).

  33. 33.

    As of 2018, the market value of funds in China amounted to 130 billion.

  34. 34.

    Xi (2006).

  35. 35.

    Ibid.

  36. 36.

    Ibid.

  37. 37.

    The figure was 19.86% in accordance to the survey report conducted by OECD in 2017.

  38. 38.

    WFE data in 2016; also see OECD Survey of Corporate Governance Frameworks in Asia 2017.

  39. 39.

    Corporate Governance Code of China’s Listed Companies, Art. 78, 79, 80, 81 & 82.

  40. 40.

    Chinese-Foreign Equity Joint Ventures Law, Art. 4.

  41. 41.

    See ‘Notice Concerning the Relevant Issues on Strengthening the Approval, Registration, Foreign Exchange Control and Taxation Administration of Foreign-Funded Enterprises (2003)’.

  42. 42.

    Foreign Investment Law, Art. 21.

  43. 43.

    Schaub et al. (2019).

  44. 44.

    Foreign Investment Law, Article 9.

  45. 45.

    Koty (2019).

  46. 46.

    Xin Hua News (2018).

  47. 47.

    Securities Law (2019 revision), Art. 63.

  48. 48.

    Securities Law (2019 revision), Art. 68.

  49. 49.

    Shen (2014).

  50. 50.

    Sender (2011).

  51. 51.

    SMEs as the creators of 60% of China’s GDP only enjoy 30% share of bank loans.

  52. 52.

    China Banking News (2018).

  53. 53.

    Huang (2019).

  54. 54.

    Opinions on Promoting Enterprise Merger and Restructuring, Article 1.

  55. 55.

    The State Council (2014a).

  56. 56.

    Shen (2016).

  57. 57.

    Zhu (2004).

  58. 58.

    Ibid.

  59. 59.

    Loubere and Zhang (2015).

  60. 60.

    Ibid.

  61. 61.

    Shen (2016).

  62. 62.

    Ibid.

  63. 63.

    See ‘Notice on Further Improving the Quality and Effect of Financial Services for Micro and Small-sized Enterprises in 2019’.

  64. 64.

    Coffee (2001).

  65. 65.

    The Investment Association (2018).

  66. 66.

    Office for National Statistics (2018a, b).

  67. 67.

    For detailed discussions, see Paul (1993).

  68. 68.

    Office for National Statistics (2018a, b).

  69. 69.

    For detailed discussion, see Andrew (2014).

  70. 70.

    Davis (2015).

  71. 71.

    Office for National Statistics (2018a, b).

  72. 72.

    Ibid.

  73. 73.

    The Investment Association (2019).

  74. 74.

    Ibid.

  75. 75.

    Armour et al. (2009).

  76. 76.

    Davis (1993).

  77. 77.

    Ibid.

  78. 78.

    Ibid.

  79. 79.

    OECD (2011).

  80. 80.

    Armour and Skeel (2007).

  81. 81.

    Huang and Chen (2018).

  82. 82.

    Kershaw (2016).

  83. 83.

    Ibid.

  84. 84.

    LEX (2012).

  85. 85.

    Charkham (1989).

  86. 86.

    Financial Reporting Council (2020).

  87. 87.

    Ibid.

  88. 88.

    Bishop and Kay (1989).

  89. 89.

    Shahid et al. (2005).

  90. 90.

    Huang and Chen (2018).

  91. 91.

    Lee (2017).

  92. 92.

    Ibid.

  93. 93.

    Ibid.

  94. 94.

    The Investment Association (2017).

  95. 95.

    Takeovers Code, Rule 21.1.

  96. 96.

    Takeovers Code, Rule 9.1.

  97. 97.

    Takeovers Code, Rule 24.16.

  98. 98.

    Lee (2017).

  99. 99.

    Takeovers Code, Rule 2.2.

  100. 100.

    Takeovers Code, Rule 24.16, Rule 25.8.

  101. 101.

    Cassis and Wojcik (2018).

  102. 102.

    Franks and Mayer (2017).

  103. 103.

    Lee (2017).

  104. 104.

    Reisberg (2015).

  105. 105.

    The UK Stewardship Code, Principle 2.

  106. 106.

    Armour et al. (2002a, b).

  107. 107.

    Steinitz (2012).

  108. 108.

    Ibid.

  109. 109.

    Lee (2017).

  110. 110.

    Ibid.

  111. 111.

    Ibid.

  112. 112.

    CCP (1982).

  113. 113.

    Cai (2011a, b).

  114. 114.

    Bebchuk et al. (1999).

  115. 115.

    Xianchu (2003).

  116. 116.

    Wolff (2004).

  117. 117.

    Ibid.

  118. 118.

    The State Council of China (2014) Opinions on further Optimising M&A Market Conditions.

  119. 119.

    SASAC (2013).

  120. 120.

    Report on China’s Corporate Governance 2009: The Market for Corporate Control and Corporate Governance. Fudan University Press.

  121. 121.

    Ibid.

  122. 122.

    Chi et al. (2009).

  123. 123.

    The State Council (2010).

  124. 124.

    Ibid.

  125. 125.

    Xi (2015).

  126. 126.

    Huang and Chen (2018).

  127. 127.

    Cai (2011a, b).

  128. 128.

    Measures for the Administration of the Takeover of Listed Companies, Article 8 & 33.

  129. 129.

    Cai (2011a, b).

  130. 130.

    Ibid.

  131. 131.

    Xi (2015).

  132. 132.

    Lin et al. (2017).

  133. 133.

    Bagwell (1991).

  134. 134.

    Lee (2017).

  135. 135.

    Milhaupt (2015).

  136. 136.

    Qiu (2017).

  137. 137.

    People’s Bank of China and the CSRC (2018).

  138. 138.

    Zhang (2008).

  139. 139.

    Cai (2011a, b).

  140. 140.

    Measures for Takeovers 2014, Art. 61.

  141. 141.

    Ibid.

  142. 142.

    Ibid.

  143. 143.

    Measures for Takeovers 2014, Article 24.

  144. 144.

    Cai (2011a, b).

  145. 145.

    Measures for Takeovers 2014, Article 25.

  146. 146.

    Cai (2011a, b).

  147. 147.

    Measures for Takeovers 2020, Art. 61.

  148. 148.

    Measures for Takeovers 2020, Art. 62 & 63.

  149. 149.

    Xi (2015).

  150. 150.

    Securities Law (2019 Revision), Art. 65.

  151. 151.

    Measures for Takeovers 2020, Art. 24.

  152. 152.

    Securities Law (2019 Revision).

  153. 153.

    Code of Corporate Governance for China’s Listed Companies (2019 Revision).

  154. 154.

    Huang and Chen (2018).

  155. 155.

    Lee (2017).

  156. 156.

    Ibid.

  157. 157.

    Kershaw (2016).

  158. 158.

    Ogowewo (2007).

  159. 159.

    The Takeover Panel (2020).

  160. 160.

    Kershaw (2016).

  161. 161.

    Nyombi (2015).

  162. 162.

    Ibid.

  163. 163.

    Department for Business (2012).

  164. 164.

    Kershaw (2016).

  165. 165.

    Lee (2017).

  166. 166.

    Ibid.

  167. 167.

    Kershaw (2016).

  168. 168.

    Lee (2017).

  169. 169.

    Ibid.

  170. 170.

    Guanghua and Minkang (2001).

  171. 171.

    Hui (2014).

  172. 172.

    Ibid.

  173. 173.

    Guanghua (2005).

  174. 174.

    Huang and Chen (2018).

  175. 175.

    Ibid.

  176. 176.

    Xi (2015).

  177. 177.

    Measures for Takeovers 2002, Article 49.

  178. 178.

    Measures for Takeovers 2002, Article 34.

  179. 179.

    Measures for Takeovers 2002, Article 13, 14 and 23.

  180. 180.

    Xi (2015).

  181. 181.

    Measures for Takeovers 2002, Article 13.

  182. 182.

    Measures for Takeovers 2006, Article 24 and 25.

  183. 183.

    The State Council (2014b).

  184. 184.

    Ibid.

  185. 185.

    Cai (2011a, b).

  186. 186.

    Measures for Takeovers 2006, Article 8 and 24.

  187. 187.

    Measures for Takeovers 2006, Article 49.

  188. 188.

    Hua (2007).

  189. 189.

    Measures for Takeovers 2002, Article 13.

  190. 190.

    Measures for Takeovers 2002, Article 49.

  191. 191.

    For the detailed discussions, see Sect. 3 of this chapter.

  192. 192.

    Cai (2011a, b).

  193. 193.

    Ibid.

  194. 194.

    Ibid.

  195. 195.

    Ibid.

  196. 196.

    James (2019).

  197. 197.

    Ibid.

  198. 198.

    Huang and Chen (2018).

  199. 199.

    Ibid.

  200. 200.

    Caixin (2017).

  201. 201.

    Huang (2019).

  202. 202.

    China Daily (2017).

  203. 203.

    An Ran (2017).

  204. 204.

    Ibid.

  205. 205.

    Sheng (2017).

  206. 206.

    Empirical studies revealed that, in many listed companies’ articles of associations, an array of draconian takeover defences has been adopted, which harms shareholders’ interests. However, these defences are regulated by a soft-law approach, rather than prohibited by the securities regulatory authority (CSRC), i.e. stock exchanges issue ‘letters of concern’ to listed companies. For detailed discussion, see James (2019); also see Hui (2019).

  207. 207.

    Such as hostile takeover battels between Nanbo Float Glass Co., Ltd., v. Baoneng Investment Group (bidder), Yili Industrial Group v. Sunshine Insurance Group (bidder), and Gree Electric Appliances Industrial Group v. Foresea Life Insurance (bidder).

  208. 208.

    Xi (2015).

  209. 209.

    Guofeng and Junyi (2015).

  210. 210.

    CBRC (2018).

  211. 211.

    Ibid.

  212. 212.

    Ibid.

  213. 213.

    Measures for Takeovers 2020, Article 4.

  214. 214.

    Weilin et al. (2017).

  215. 215.

    Sheffield Political Economy Research Institute (2017).

  216. 216.

    Foreign and Commonwealth Office (2017).

  217. 217.

    Ibid.

  218. 218.

    For example, the contest between Chinese Company China National Offshore Oil Corporations (bidder) and US Unocal was the first big unsolicited takeover, which occurred in 2005.

  219. 219.

    Lee (2017).

  220. 220.

    Ibid.

  221. 221.

    Cai (2011a, b).

  222. 222.

    James (2019).

  223. 223.

    Cai (2011a, b).

  224. 224.

    Xi (2015).

  225. 225.

    Ibid.

  226. 226.

    Ibid.

  227. 227.

    Ibid.

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Lee, J., Bao, Y. (2021). Conflict of Goals in Takeover Law: The Impossible Regulatory Alignment Between UK and China. In: Lee, J. (eds) Takeover Law in the UK, the EU and China. Springer, Cham. https://doi.org/10.1007/978-3-030-72345-3_2

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