China

8 Chapter M&A

    • Trends in M & A in China

      The real GDP growth rate in the People's Republic of China declined during 2008-2009 due to the financial crisis and also maintained a high growth rate despite the fall in the first half of 2012 to 8%, 7% level again I will.
      For China, Japan is the top investment country that accounts for approximately 10% of the total foreign capital. Furthermore, the amount of direct investment in Japan has also increased by more than 10 times compared to around 2000 when it was sluggish, and the relationship between Japan and China is very close.
      Since 2006, since China has strict regulations on foreign capital as other ASEAN countries, investment in China was mainly based on minority investment in joint venture companies and companies in China. However, the Chinese government's 12th Five-Year Plan announced in 2011 relaxed restrictions on foreign capital. Therefore, Japanese companies are actively pursuing M & A with the aim of acquiring further control.
      Indeed, the total number of M & As in China in 2012 - 2013 is more than 3,500. Although the number of foreign investment restrictions has been somewhat decreased compared with 2011 when it was relaxed, looking at the amount of transactions, the figure was about US $ 200 billion in 2012 as of 2012, more than US $ 250 billion in 2013 It is rising to.
      In this way, investment attention is high in China like ASEAN 5 (Thailand, Malaysia, Indonesia, the Philippines, Vietnam), NIES (Korea, Taiwan, Hong Kong, Singapore) and investment attention is high and further various industries are being released , Active investment is expected further in the future.
      China's wage base-up rate is getting higher year by year, but still it is still sluggish compared to developed countries. Furthermore, since many citizens recognize English as an official language, there are many excellent talent who can speak English. When trying to invest in a developing country, the barrier of culture and language becomes a big issue. In that respect, investment can be made smoothly in China without any obstacles to language compared to other ASEAN countries. For this reason as well, many foreign companies are paying attention, including Japan.
       
      ■ M & A cases of Japanese companies
      The number of acquisitions (In-Outs) by Asian companies by Japanese companies is 189 in 2012 and 202 in 2013, among which 47 M & A and M & A to China are investigated (by Recoff). The following table shows a case of M & A from Japan to China that took place in 2012 and 2013.
       

    • Laws and regulations concerning M & A

      When conducting M & A in China, since there are multiple regulations related, it is necessary to understand each law crosscuttingly. The relevant regulations are as follows. Of these, the main regulations are explained in this section.

    • Investment regulation

      Foreign direct investment in China is free in principle, but according to the guidelines in the direction of foreign investment investment, the upper limit of the investment ratio and the minimum amount of capital are stipulated for certain industries.
      As a result, as a result of M & A investment, transactions whose equity investment exceeds the foreign capital regulation are not allowed. Furthermore, in the foreign investment industry guidance catalog that came into effect on January 30, 2012, restricted industries and banned industries are specified in detail for each industry's business, and certain restrictions are placed on entry of foreign companies.
      Therefore, it is the first step of M & A in China to confirm whether target industry falls under foreign capital regulation.
      Foreign invested industry guidance catalog was first announced in 1989 under the name of encouragement, restriction, prohibited inventory of foreign investment. Initially, industry-specific policies for foreign investment introduction were classified by priority for each industry and product item.

      Comparing the new inventory with the fiscal 2007 version, the number of incentives has been changed from 351 to 354, the restrictions have been changed from 87 to 80, and the prohibited class has been changed from 40 to 39. In addition, those that do not fall under any of the encouraged classes, restricted classes, or prohibited classes are called permission classes. Such an increase in incentives, reduction of restrictions and prohibitions are said to have been done to promote the openness of the industry to the outside world.
      ■ Regulated Industry / Prohibited Industry
      [Prohibited kind]
      It is prohibited to invest in projects that fall under the prohibited category.
       
      · Those that harm the national security or impair the interests of society and the public
      · Contaminating the environment, destroying the natural environment or harming human health
      · It occupies a large amount of arable land, which is disadvantageous for the protection and development of land resources or harms the safety and function of military facilities
      · Products produced by the country's unique production process or technology
      · Other projects prohibited under the provisions of national laws and administrative regulations
       
      Some of the items belonging to the prohibited category in the former catalog, such as the establishment of a futures trading company, became restricted or permitted in the new inventory.
      Specifically, the construction and management of the villa has been changed from restricted type to prohibited type, domestic mailing work of the letter has been added to the prohibited category. Meanwhile, the import division of books, newspapers, periodicals, audio products, and electronic publications has been removed from the prohibited category.
       
       [Restrictions]
      When investing in a project that falls under the category of restriction, 100% foreign capital will not be accepted and investment will be limited. However, if the total investment in the foreign investment project by the Chinese side investor is 51% or more, it can invest in the restricted industry in the form of a Sino-foreign joint venture company.
       
      · Late technical level skills
      · Disadvantageous for saving resources and improving ecological environment
      · Parties engaged in exploration and mining of specified mineral products, which are to be protected and mined prescribed by the government
      · Belonging to industries in which the country opens in stages
      · Other circumstances prescribed by laws, administrative regulations
       
      As for the manufacturing industry, in 2007, we are seeing expansion of items due to chemical raw materials, chemical manufacturing, non-ferrous metals, etc. Meanwhile, in the service industry, wholesale and retail trade, commodity lease, cargo transportation proxy etc are out of restrictive type (excluding communication and net sales etc.), reflecting the fact that market opening by WTO accession penetrated into the service field It was.
      With the revision of the 2011 foreign investment industry guidance catalog, entry of foreign companies into the manufacturing industry is eased, restrictions on production of natural food additives and food additives, manufacturing of new energy power plants or major equipments are limited to joint ventures and collaborations It was. With regard to irrigation, environment and public facilities management, hygiene, social security and welfare industry, there are no restrictions.
       
      ■ Regulations on land ownership
      In China, the concept of land is divided into two, ownership and usage rights. When entering China, it is important to firmly recognize the land system.
      According to chapter 1 Article 10 of the People's Republic of China, the ownership of the land is regarded as either whole ownership or group ownership. All people's ownership means ownership of the state. The latter group ownership means ownership of the farmer group. It is basically apparent that the land of the city is owned by the country, and it reflects socialism strongly.
      Also, there are two types of land use authority, national land use rights and collective land use rights. In addition, the state-owned land use rights are classified into two types: allocated land use rights and payable land use rights.
      We have adopted a bid / auction / public notice system from 2007 in order to acquire payable land use rights. Previously there were three ways of consultation, bidding, auction, but it was changed to prevent agricultural land protection, unplanned investment and low level duplicate construction. If you acquire land use rights, you can also rent, collateralize, and transfer. However, the upper limit of the number of years of land use is determined as follows according to the application.
      The use of Chinese land is strictly controlled. If you divide the use of land into agricultural land, construction land, unused land, and use it other than the use of the determined land, you must take the use conversion procedure. However, since the total amount of land is strictly determined for each application, it can not be easily changed in usage.
       
      Regarding idle land for more than two years, it has been traditionally stipulated in the "Land Treatment Regulation No. 5" of the Ministry of Land Resources Division, "If you can not start construction work even after more than one year since land acquisition, We have to pay land idle expenses equivalent to 20% or less, and the government collects land free of charge if we do not use the land for the second consecutive year. " Some examples have been requested by local governments entrusted with authority from the state by strengthening land management.
      In addition, there is a provision that allows "expropriation by the government based on public interests and urban planning" in "Land Management Act" (Chief Decree No. 28) etc revised in August 2004, but after the establishment, It is necessary to pay attention to the fact that regulatory operations are being tightened in recent years, such as cases that have been forced.
       
      When Japanese companies use land in China, do not forget that they are only given the right to use land from the state. In Japan, private ownership of land is allowed, but in China there are only two ownership rights, all ownership rights and collective ownership. There are also many cases of the outbreaks of Japanese companies evolving without understanding the system.

    • New company law

      The Chinese Corporate Law applies not only to domestic capital companies within China but also to foreign invested enterprises (so-called foreign companies). In addition, special laws such as the Sino-foreign joint venture corporate law, the Chugai cooperative corporate law, the foreign investment enterprise law, etc. are also applied to foreign invested enterprises.
      The fundamental matters concerning stock transfer, new stock issue etc. widely used as a method of M & A are stipulated in the New Company Act of China.
      However, even though it has been revised, there are too few provisions of the statement, so it is necessary to pay attention to practical rules and trends. For specific practical measures, appropriate advice from lawyers and other experts is necessary.
       
      ■ Equity and equity transfer
      When issuing new shares, a resolution of general shareholders is required (Article 134 of the Company Law).
      When publishing new shares, it is necessary to publish the prospectus for new shares, public notice of financial statements, and creation of stock subscription (Article 135).
      In order to properly pay in, as with the establishment, it is necessary to conclude a handling agreement on stock purchase with banks (Article 88). The contracted bank is obligated to issue a payment certificate (Article 89).
      Just as in Japan, in-kind investment is allowed for the consideration for issue of new shares in China (Article 27). Specifically, assets that are allowed to be invested will be assets that can be evaluated by currencies such as intellectual property and land use rights, and that can be transferred non-currencies according to the law.
       
      [Warrants]
      Details are unknown because there is no explicit provision in China Company Law, but in practice it is done.
       
      ■Merger
      As with the case of Japan, the China Corporate Law allows both absorption-type mergers and incorporation-merger (Article 173). Absorption merger means that one company absorbs other companies, and an innovation merger means that two or more companies merge to establish one new company. Absorption merger is common in China.
      The effect of the merger is the same as in Japan, the company to be merged is extinguished and all rights and obligations of the company to be merged, such as assets and liabilities, are transferred to the surviving company as a comprehensive succession without a separate transfer agreement. However, obligee protection procedures are required.
      Companies conducting the merger will evaluate the assets of the merging parties and will approve the merger plan at the resolution of the Board of Directors. The merger plan specifies merger conditions, merger method, articles of incorporation, etc. However, as there is no explicit statement about the consideration of the merger, it may be considered to consider the merger grant (money), convertible bond type bonds with stock acquisition rights, stock of the parent company of the surviving company (triangle merger) etc.
      After that, at the shareholders' meeting, we will vote by approving two-thirds or more of the voting rights of the shareholders present (Article 104). At that time, shareholders who are opposed to the merger will be allowed to exercise their right to purchase shares held by them at a resolution of the general shareholders meeting.
      The quorum at the general shareholders' meeting is not clearly stipulated. If you want to establish a quorum, it is necessary to state it in the articles of incorporation as so-called optional items.
      Each party of the merger concludes a merger agreement and creates a balance sheet and property statement. In addition, corporate merger is a particularly important matter for creditors, so you must do creditor protection procedures. Creditor protection procedures must be notified to the creditors within ten days from the date of the merger resolution and must be published on the newspaper within 30 days (Article 174).
      However, unlike Japan, no exception is stipulated for "creditors who are known" (Article 789). If you do not obey the law and do not make a notice or publication, you need to be careful as it may be subject to a non-penalty of 10,000 yuan or more and 100 thousand yuan or less.
      The general merger procedure is as follows.
       
       
       
      ■ Split
      Business division refers to the act under the Organization Act which comprehensively inherits all or part of the rights and obligations held with respect to the business to other companies (split succeeding companies) by division. The case where a newly established company split successor company is newly established through splitting is called an innovation split and the case where an existing company becomes a split succeeding company is called absorption split.
      When dividing a company, you need to prepare balance sheet and property statement. Also, as with corporate mergers, we will conduct creditor protection procedures (Article 176 of the Companies Act). For debt before the company splits, the company after split assumes joint and multiple responsibility. However, when separately agreed in writing in advance, that is not the limit (Article 177).
      Shareholders who opposed the resolution of the general meeting of shareholders may request the company to purchase the equity at a reasonable price (Article 75 (2)).
      The general procedure of company split is almost the same as the procedure of merger except that application for dissolution is unnecessary.
       
      ■ Assignment
      Assets subject to property transfer may include inventories, tangible assets such as machinery and land, intangible assets such as goodwill and know-how. However, unlike Japan, there is no provision in the Corporate Law of China's property transfer. Although it is called business transfer in practice, it is an aggregate of individual transactions that individual assets, liabilities, etc. are transferred individually under the China Company Law. In terms of practical operation, there are many organizational restructurings that utilize business transfer with simplified procedures without using mergers and divisions that are licensed and approved. However, when a listed company purchases or sells a significant asset within one year, it is an important matter for the company, so promptly call a general shareholders meeting and share two-thirds of the voting rights of the attending shareholders It is necessary to agree with (Article 105, Article 122 of the Company Law). In a resolution of the general meeting of shareholders, the opposing shareholder may request the company to purchase the share at a reasonable price (Article 75 (2)).
       

    • Securities Act

      The China Securities Law was revised in 2005 and came into effect on January 1, 2006. This law applies to public companies and is a law for protecting equal rights of widely existing stakeholders (Securities Law 1, 2, 10).
      Regarding M & A of public companies, tender offer regulations, disclosure regulations, insider trading regulations and so on are related.
       ■ Tender offer regulation
      Tender Offer refers to a system that publishes shares of a company on the basis of the purchase price, period of purchase, etc. and buys up shares from unspecified majority shareholders, and it is also common in Japan to acquire listed companies It is being used. By mandating this, the purpose of the system is to trade to some shareholders with favorable terms and not to impair the fairness with other shareholders.
       
      [When a Tender Offer is Required]
      When acquiring the shares of a public company, we must comply with the regulations of public tendering stipulated in the same law. In principle, a tender offer is mandatory if one of the following requirements is satisfied.
       
      · If the issued shares of one listed company held by investors through securities transactions at a stock exchange or jointly held by others with consultation or other arrangements has reached 30%, the purchase will continue When (Securities Act Article 88)
      · In case of adopting the consultative acquisition method, in the case where the purchaser acquires, or when the issued shares of one listed company to be acquired jointly with other people by consultation or other arrangements reaches 30%, when continuing the acquisition (Article 96)
       
      [Tender Offer Price]
      In the case of making a tender offer, since various problems arise when transactions become feasible at a free price, the Securities Act provides the following provisions.
       
      · The purchase price must be uniform for all shareholders (Securities Act 89, 91).
      · The acquirer is prohibited from selling the shares of the acquisition target company within the purchase deadline. Also, it is prohibited to purchase shares of companies subject to acquisition under conditions other than those stipulated in the application or conditions exceeding the terms of application (Article 93).
      · After the acquisition, if the composition of shareholders of the acquisition target company no longer meets the listing conditions, the shareholder holding the shares of the acquired company reserves the right to sell the shares to the acquirer under the same conditions as the purchase application The buyer must purchase it. In other words, the provisions protect the economic interests of the shareholders by giving the acquirer an obligation to purchase the shares, giving shareholders the opportunity to transfer the shares, and prescribing the purchase price equal to the purchase offer , So that it does not cause unexpected damage to shareholders through acquisition (Article 97).
       
      [Withdrawal of tender offer]
      Once withdrawal of the Tender Offer after the Tender Offer is initiated, it is used for market maneuvering and may have a significant impact on shareholders and the stock market, so in Japan, we will withdraw freely I can not do it.
      Within China, as a general rule, withdrawal of the tender offer is not allowed within the period of acceptance of the offer to purchase the tender offer. However, when it is necessary to change the purchase application, it must be reported to the Secretariat of the State Council Securities Regulatory Authority and the stock exchange beforehand in advance and should be notified after approval (Securities Act Article 91).
       
      ■ Inspection regulation
      [Large inventory reporting regulation]
      Large shareholding reporting regulation is regulation to protect investors by maintaining market transparency and fairness. When a certain person owns a large amount of shares, the large holders have a large influence on the company's control relations and the market price of the stock, and intentional stock price fluctuations become possible. As a result, general investors may suffer unexpected damage. The regulation was introduced so as not to have such a thing.
      The regulation is subject to holding shares of 5% or more of the shares of the target company through acquisition of shares (the first row of the Securities Act, Article 86). Within 3 days from the date of possession it is necessary to report to the Secretariat of the State Council Securities Supervision Administration and the Stock Exchange in writing, notify the listed company and publish further. The contents of the report are the following three (Article 87).
       
      · Name and address of the shareholder
      · Name and number of shares held
      · Date when the shareholding has reached a statutory percentage or when the increase or decrease in the number of shares reaches the statutory percentage
       
      On the other hand, if you hold more than 5% of shares through consultative acquisition that does not go through the stock exchange, it is not eligible because the provisions related to the large volume holding report regulation are not specified under the Securities Act. Consultative acquisitions are prescribed assuming relative trading of non-trading shares, and in this transaction it is considered that there is little possibility that general investors in the market will suffer unexpected damage.
       
      [Timely Disclosure]
      Extraordinary report
      If significant facts have occurred that may have a relatively large impact on the stock trading price of listed companies and investors do not yet know of this fact, the company may request the State Council Securities Regulatory Authority and Securities It is necessary to submit it to the exchange and publish it (Securities Act 67). "Important fact" is the next 12 events.
       
      · Significant changes in management policy and scope of management of the company
      · Company's critical investment actions and decisions on significant property purchase
      · In the event that the Company enters into an important contract and may have a material effect on the company's assets, liabilities, interests and business results
      · In the event of a penalty situation arising with respect to a serious obligation of the company or a serious obligation that has not been paid and has already expired
      · In the event of a serious loss or serious damage to the company
      · When significant changes occur in the external conditions of the company's production management
      · When there is a change in company director, one-third or more auditor or manager ("accounting" in Chinese)
      · A relatively large change occurs in the shareholding situation or company control situation of shareholders or real controllers holding 5% or more of the company's shares
      · When the company's capital reduction, merger, division, dissolution, bankruptcy application are decided
      · If a general shareholders' meeting or Board of Directors resolution is erased by law or declared invalid due to a serious lawsuit concerning the company
      · The company is suspected of being a crime and has been investigated by a judicial agency, or if the company's directors, auditors, senior management are suspected of crimes and are being enforced by judicial bodies
      · Other matters prescribed by the State Council Securities Regulatory Authority
       
      Mass fluctuation report
      Under Securities Law Article 86 (2), there is a provision similar to the Large Shareholding Report Control. The purpose of this provision is also in protecting investors.
      The provision of large-volume possession report regulation (securities law Article 86 (2)) is a provision requiring reporting and public notice at the time of acquiring 5% or more of shares, and does not force the subsequent reporting and publication. However, even after acquiring more than 5% of the shares, large holders may still cause unexpected damage to general investors by influencing the company's dominance relationship and the market price of the stock. Therefore, even after the issued shares of listed companies have reached 5%, each time the proportion of issued shares of listed companies they hold has increased by 5% or 5%, as in the case of large-volume reporting regulations It is necessary to report and make a public notice.
      Furthermore, because it is assumed that fluctuations in market prices will be large within two days after the reporting deadline, reporting, and public notice, we are prohibiting newly trading stocks of the listed companies.
       
      [Continuous disclosure]
      Listed companies must submit a quarterly report within 30 days after the end of the first quarter and the third quarter of each fiscal year within six months from the end date of each fiscal year within 2 months from the end date of the first half To the State Council Securities Regulatory Authority and Stock Exchange and the stock exchanges, respectively, and to make public notice thereof (Article 65, 66 of the Securities Act, Special Provisions concerning the Quarterly Report and the Stocks 4 ).
      The contents of the annual report and the semi-annual report are enumerated in Article 65 and 66 of the Securities Act, and the content of the semi-annual report is simpler than that of the fiscal year. An accounting audit by the accountant's office is required for the annual report.
      With this information, investors can periodically obtain appropriate information and make appropriate economic decisions possible. It also enables companies to efficiently raise funds.
      Listed companies must establish management rules concerning information disclosure of their company, deliberate this at the Board of Directors, and submit it to the certification supervision office of the company registration place and the stock exchange.
       
      ■ Insider trading regulation
      Insider trading refers to the act of insider (securities law Article 74) using the insider information (Article 75) to seek self or a third party's interests. When this transaction is carried out, it will result in unfairness in stock trading, shareholder inequality, and distrust in the securities market, resulting in the loss of the premise of the capital market, which is the foundation of the economy. Therefore, the Securities Act provides insider trading (Article 73).
      However, there is no detailed provision concerning insider trading in the current China. It will be clear in the future as the China Securities Regulatory Commission (WGC) announced in 2012 that it will strengthen crackdown on insider information. It is expected to be placed in a strict legal surveillance system and coordinated with the international community.

    • Antitrust law

      In China the Anti-Monopoly Act of the People's Republic of China (Antitrust Act) has been enforced.
      This antitrust regulation object can be divided into four types: monopolistic agreement, abuse of dominant market position, business combination, exclusion of competitiveness due to abuse of administrative authority and restriction. Especially for M & A, caution is required because it is sometimes required to file a business combination rule called business concentration even if you do not have a subsidiary in China. Also, since there are many ambiguous provisions, it is necessary to consult with the State Council antitrust law enforcement agency in advance.
       
      ■ Exclusive agreement
      Exclusive agreement is forbidden in the following two cases.
      The exclusion of exemption from monopolistic agreement prohibition is stipulated as follows.
       
      · Technology improvement and new product research and development
      · Division by quality improvement, cost reduction, efficiency, unification of product standards standards and specialization
      · Increase management efficiency and competitiveness of SMEs
      · Realization of public interests such as energy saving, environmental protection, disaster relief
      · Due to the economic downturn, remarkable decline in the number of sells, easing production excess · legitimate income compensation for foreign trade and economic cooperation
       
      ■Abuse of dominant market position
      The Anti-Monopoly Law has provisions prohibiting abuse by businesses in a market dominant position. In particular, criteria for dominant position are important.
       
      ■ Business combination
      The Antimonopoly Act prohibits business combining transactions (acquiring control over mergers, acquisitions of equity or assets, acquiring control over contracts, or transactions having a decisive influence on other businesses) if they meet the declaration criteria in advance We declare that we can not combine business unless we declare it despite the need to declare to the State Council antitrust law enforcement agency.
      Also, when monopolistic acts abroad exert an exclusive influence on the domestic market, the antitrust law will apply.
       
      [Declaration criteria]
      A declaration is required when one of the following declaration criteria is satisfied.
      · If the total worldwide sales total of all businesses to be combined with businesses exceeds 10 billion RMB in the previous fiscal year and at least the domestic sales of the two businesses in the previous fiscal year exceeding 400 million RMB
      · If the total of domestic sales of all businesses to be combined with the previous fiscal year exceeds 2 billion RMB and at least domestic sales of the two businesses in the previous fiscal year exceeding 400 million RMB
       
      "Domestic" of domestic sales means that the goods or buyer's location to which the business operates is in China's domestic market. Therefore, business combining companies may need to file a declaration even if they do not have subsidiaries etc. in China. However, even if it meets the declaration criteria, corporate reorganization within the group is not eligible for declaration. This is because the influence on the outside is low and it is exempted.
       
      Declaration Procedure
      It will take up to 180 days from the date of receipt of the declaration form from the business operator from the start of the examination until the decision. When planning a business combination, it is necessary to pay attention to the review period. For those who need to declare, we first submit the declaration documents etc. to the State Council Antitrust Law Enforcement Organization. Initial screening within 30 days (in certain cases, within 90 days) from the date of receipt of the documents from the business operator, we have written notice in writing whether or not to conduct the secondary review. The business operator can not implement the business combination before the decision. However, if it is decided not to do secondary screening, or if there is no notification even if it arrives at the deadline, you can implement business combination.
      In the case of secondary screening, the secondary review will be completed within 90 days from the decision date, and the results and reasons for whether or not to cancel the business combination will be reported in writing. In practice, secondary review will be terminated in most cases without re-extension. In addition, restrictive conditions that reduce the negative impact on domestic competition may be added to the business combination of approved business operators. However, the current situation is that there are overwhelming cases where it is unconditionally approved.
       
      ■ Elimination and limitation of competitiveness by abusing administrative authority
      The exclusion and limitation of competition by administrative authority abuse is a characteristic rule of China because it is regulation which does not exist in the antitrust law of Japan and the United States. It is stipulated that it should not carry out monopoly acts due to compulsion, designation, authorization etc. by the administrative organizations etc of the business operator. In the case of doing the said act, because it is processed based on the survey processing rules, even if it is compelled to the administrative organs etc, there is a possibility that it may not be exempted, and attention is necessary.
      If you violate the antitrust law, the following penalties will be imposed.
      Also, as a result of conducting monopolistic acts, you will bear civil liability if you suffer disadvantage to others.
       
      ■ Company Evaluation System
      In China, corporate evaluation procedures are set by corporate value evaluation guidance opinion (trial) and rules for evaluation and management of inherent assets. It is necessary to pay attention to the fact that the most important purpose of the Chinese enterprise evaluation system is to prevent overseas runoff due to unreasonable low price evaluation of Chinese state-owned assets, in fact, it may actually be advantageous to the Chinese side Yes. In addition, the company evaluation process in China is often uncertain to the Japanese side.
      The company evaluation method mainly used in China is as follows.
      Regarding the evaluation process, it is not left unilaterally to the Chinese side, but about the appointment of the evaluator, the decision of the company evaluation method, the method of enterprise value determination, the clarification of the investigation right of the company and the examination right of the evaluation draft document It is important that the side also considers and decides.
      For example, there are two ways to determine corporate value in China. One is to determine the range of corporate value and leave it to the result of statutory evaluation. The other way is to determine the range of corporate value beforehand and determine the corporate value with reference to the results of statutory evaluation. In the Chinese regulations, the former is the principle, but since it is also possible to adopt the latter in practice, we need to make a selection after discussing which way they are convinced of each other.
      Regarding approval from the government, even if the price of both companies is mutual agreement between Japan and China, if the agreed price deviates more than 10% from the statutory evaluation price, it may not be approved. Especially when it is disadvantageous to the Chinese side, the risk not approved is high.
      The evaluator who calculates the statutory evaluation price is objective evaluation to the last, it is difficult to hope for flexible correspondence about matters individually agreed by Japan and China side. However, in relatively small evaluation offices and individual offices, there are places where we can respond flexibly when the range of corporate price is predetermined between parties. In addition, it is generally difficult for the evaluator to revise the evaluation content once it has been decided, because it involves evaluators' face-ups.

    • Accounting standard

      In conducting M & A, generally, we will conduct due diligence of the target company and calculate the corporate value. Also, when conducting M & A in other countries, not only in China, accounting standards are often different in each country, so we need to keep track of it.
      China's accounting standards do not fully apply the International Financial Reporting Standards (IFRS), and the adoption of whether to fully apply in the future is also unknown. However, since 2007 accounting processing based on IFRS-based new accounting rules has been carried out, it can be said that maintenance standards are the same as international standards. There are cases where illegal processing peculiar to emerging countries is carried out in actual operation, so it is necessary to be careful.

    • Tax on M & A

      If you do M & A, various tax regulations will be involved with it, so you need to be careful.
      That is, prior to the acquisition, taxation provisions relating to the sale of stocks, tax provisions relating to tax loss carryforwards after acquisition, etc., the impact of taxation surrounding M & A is extensive.
      On the other hand, it is necessary to pay attention to whether you can enjoy the benefits such as tax incentives.
       
      ■ Stock transfer
      [Tax on Transfer of Stock]
      Gain on transfer of shares
      The profit arising when the seller transfers the shares is taxed on that profit. There is also the possibility that international double taxation taxed by the law of the country of residence may be sent by sending the sale price to the country of residence of the foreign investor. Because taxation in either country may be exempted depending on whether or not a tax treaty has been concluded between China and each country, it is necessary to investigate in advance.
      In terms of China tax treatment, the handling of gains on transfer of shares by each investor is as follows.
       
      Value increase tax (a type of VAT included in China)
      Voucher tax is not taxed for the transfer of shares.
       
      Stamp Tax (Stamp Tax)
      The selling tax is very similar to the stamp duty in Japan. There are two major differences. First of all, the stamp duty tax in Japan is the progressive tax rate, while China adopts the proportional tax rate (the ratio of taxation standard and tax amount is always constant). In addition, compared with Japan stamp duty tax, the point of collection is narrow.
      Taxable amount is the amount of the certificate. The tax rate varies depending on the contract, but 0.03% of the purchase price if it is a sales contract, 0.05% of the debt amount if it is a money lending contract, 0.05% if it is a property right transfer certificate will be taxed. Also, if it is a right certificate, it is 5 yuan per case.
      In addition, according to the China stamp duty tax law, for documents that have legal effect within China even for documents created in countries other than China, for documents that are protected by law, stamps must be affixed in accordance with the regulations It has been with.
       
      [Regulations on Taxation after Stock Acquisition]
      Continuation of carryforward loss carryforward
      In order to apply continuation of loss carryforwards, it is necessary to satisfy all of the following five requirements.
       
      · Have a reasonable commercial purpose, do not aim for subtracting taxes, avoiding / delaying
      · In the case of equity or asset transfer, the ratio of either purchase or acquisition assets does not fall below 75% of the total ownership or total assets
      · Do not change management activities of transferred assets within 12 months after corporate restructuring
      · Companies' restructuring transaction consideration amount is not less than 85% of total transaction amount
      · Major shareholders who newly received shares in corporate reorganization shall not transfer the acquisition interests within 12 months after realignment
       
      If the above provisions are satisfied, it is permitted to inherit the annual upper limit and take over the carryforward loss (5 years).
       
      Preferential treatment
      Several preferential measures to be applied after corporate reorganization are stipulated. If the foreign investment ratio falls below 25%, it will be treated like a Chinese company. If there is no change in the absolute amount of investment by a foreign-affiliated company, there is no tax exemption for foreign enterprise income tax received in the past, no additional tax reduction. The provision of tax-free preferential measures is still unclear yet, but supplementary instructions will be promulgated from now on.
      In addition, when transferring some or all of qualifying assets of a company together with its related receivables, debts, and labor force due to acquisitions of shares, etc., as asset restructuring, tax incentives and business tax incentives You can receive.
      Acquisition cost of acquisition of shares included in cost
      In the case of stock trading, payment to experts, taxes to be borne by buyers, etc. are not clearly stipulated in the new corporation acquisition tax law, so in principle it can not be included in deductible. However, it can be recorded as acquisition cost and included in the withholding tax acquisition cost when selling the stock (excluding expenses to be borne by the buyer).
       
      ■ Assignment
      [Tax on Asset Transfer]
      Taxable Assets for Gains on Assets Normal income tax (25%) is imposed on transferred profits at the time of transfer of assets. However, it is important to note that there are risks such as follow-up surveillance by China Customs if incomes payment of incremental tax etc. occurs on part of the acquired assets.
       
      Business tax
      Business tax is imposed on the seller for intangible assets such as patents, land use rights and buildings by 5%. As for the land use right, additional land value tax is imposed, so it is necessary to pay attention.
       
      VAT
      A selling price of 17% is imposed on the selling price of inventory (not subject to incremental taxation purchase) and second hand fixed assets (acquired from 2009) to the seller. In addition, the incremental tax on used fixed assets (acquired before 2008) is 2%.
       
      Stamp tax (ST: Stamp Tax)
      Indochloral tax will also be raised for asset transfer contracts (see page 168).
      0.03% of the contract value of both the seller and the buyer (0.05% for ownership transfer certificate) is taxed.
       
      Consumption tax (CT: Consumption tax)
      China's consumption tax is imposed on luxury goods and environmental pollutants. Specifically, it is alcoholic beverages, tobacco, jewelry, passenger cars, cosmetics, firecrackers, fuel oil and so on. Tax rates are stipulated by various items, but tobacco etc may be subject to a maximum rate of 45%.
       
      [Tax relating to asset transfer]
      Goodwill
      Amortization of goodwill can not be included in deductible expenses.
       
      Continuation of carryforward loss carryforward
      The seller's and buyer's carryforward losses can not be taken over.
       
      Preferential treatment
      If you transfer a part or all of the qualified assets of a company together with its related credits, debts and labor as well as stock acquisition, you may be eligible for incentives for value added tax and business tax. Specifically, it is similar to the incentive measures for stock acquisition.
       
      Merger
      Continuation of carryforward loss carryforward
      The continuation of the tax loss carryforwards in the merger is the same as in the case of the tax loss carryforwards after the acquisition of shares.
      However, with respect to the split company, we will only inherit the amount of tax loss carried forward as a percentage of all assets of the split assets.
       
      Preferential treatment
      Regarding absorption merger and survival division, there is provision provision for tax reduction tax. However, since there are so many unclear points, supplementary instructions will be promulgated from now on. It is necessary to confirm with the Chinese tax authorities in advance.
      In addition, if you transfer a part or all of the company's qualifying assets together with their related credits, debts and labor force, you may be eligible for incentives for value-added taxes and business taxes. Specifically, it is similar to the incentive measures for stock acquisition.
       
      ■ Other related taxes
      [Undercapital Taxation System]
      The undercapital taxation system is a taxation system established to regulate tax avoidance practices that use taxable differences between dividends on capital and interest on liabilities. It is applied when foreign affiliates locally procure funds from their parent company. The following two methods are conceivable.
       
      · How to capitalize and make it capital
      · How to borrow money and borrow money
       
      The payment dividend generated by the former is not treated as deductible for taxable income calculation. The interest expense generated by the latter is treated as deductible and produces the effect of reducing the taxable income of the corporation, so local foreign corporations tend to decrease capital and increase borrowings.
      This is never a favorable trend from the viewpoint of ensuring tax revenue, and the local government regulates the way of balancing capital and debt and prevents excessive tax avoidance. And this tax system was incorporated into the 2008 China New Income Tax Act. As a general rule foreign-affiliated companies need to maintain a certain debt ratio, depending on the total investment.
      As a foothold in China investment, many companies are considering capital investment, but half-financed investment is risky. In other words, in the merger in China, minority shareholders in China will be responsible up to the amount of contribution, but unlike Japan, there are cases where there is no management right, decision and veto rights are poor and withdrawal is not easy. In China, minority shareholders are not protected so much at present. It is possible to create a scheme that maximizes risk. If it is 100% dominant it is certain, but in 51% and 70% it is not always possible to say that we can control.
      It is important to properly build relationships with Chinese partner companies.

      ■Tax status of companies subject to acquisition
      Even if you pay tax every year, formal tax payment will not be fixed until tax investigation is entered. In addition, in China, tax assessment is not readily accepted, or the tax amount has not been finalized at the time of acquisition. In particular, in the summary of the 12th Five Year Tax Revenue Development Plan, it is necessary to note that the reinforcement of the tax investigation is clearly indicated and strengthening of tax compliance is also required.

    • Basics of M & A scheme

      As a way to acquire the management rights of a Chinese company, the following methods can be considered.

      ■ Chinese enterprises subject to M & A by foreign capital
      Chinese enterprises subject to M & A by foreign capital are as follows.
       
      · State-owned enterprises
      · Group ownership company
      · Private companies
      · Foreign-affiliated companies (joint venture · cooperation · monopoly)
       
      What is important in China's economy is a state-owned enterprise. State-owned enterprises have state-owned enterprises in a narrow sense and state-owned enterprises in a broad sense, and state-owned enterprises subject to M & A by foreign capital are regarded as state-owned enterprises in a broad sense. A state-owned enterprise in a narrow sense is a company that is an independent corporation wholly owned by the Chinese government, but it does not fall under any limited company or corporation. Many such companies exist in China as reality in China. A state-owned enterprise in a broad sense is a state-owned enterprise that takes the form of a limited company / corporation, regardless of whether the Chinese government directly invests or not, has a high share of the state with respect to such equity or stock, It refers to the controlling company.
      Acquiring state-owned enterprises will have great influence and presence in China. Furthermore, it is difficult to enter the foreign capital directly as state-owned enterprises are responsible for various licenses such as electricity, so it was difficult for reality to enter, but acquisition of state-owned enterprises makes it possible to make license acquisition itself unnecessary Become.
       
      ■Method of acquisition
      In order for a foreign company to acquire a state-owned enterprise in China, it is possible to select either the acquisition of shares or equity or the acquisition of assets (Article 2 of the provision concerning the acquisition of domestic enterprises by foreign investors).
       
      [Acquisition of shares / equity]
      Acquisition of shares and equity is a method by foreign investors to purchase shares or equity, or to undertake capital increase and change the company to a foreign investment enterprise.
       
      [Acquisition of assets]
      Acquisition of an asset means that a foreign investor establishes a foreign-invested enterprise, buys assets of domestic companies through the enterprise and manages assets, or foreign investors buy assets of domestic companies, and foreign investors enter foreign investment enterprises To establish assets. Restrictions on the acquisition of important areas are stipulated. In cases where the subject company is an important industry etc. and it is judged that it will have a bad influence on the security of the nation or domination of a domestic company with a famous trademark etc will be transferred, it is necessary for both parties to file a declaration to the Ministry of Commerce .
      In the event that a negligent declaration is made and the relevant agency such as the Ministry of Commerce determines that the transaction has a significant influence on the safety of the national economy, the transaction may be canceled (Foreign investor's Regulation 12 on acquisitions of domestic companies).
      However, as there are no clear criteria with respect to the details of "important industries", we need to always keep an eye on the latest laws and regulations, political trends, etc.
       
      ■Legal evaluation of state-owned property
      When acquiring state-owned enterprises, we must pay attention to the statutory evaluation of state-owned property. This is a system to prevent Chinese assets from being sold to foreign companies at unreasonable prices and is a system that is enforced when domination of state-owned assets becomes non-state-owned. As well as the transfer of assets, there is a possibility that it may also be applicable at the time of corporate reorganization such as mergers and divisions, so extreme caution is required for the inclusion of state-owned assets for the transaction.
      Normally we will conduct financial investigations and evaluations such as due diligence to the companies subject to M & A, but in China it is a major feature that it stipulates the law up to property evaluation.
      The term "state-owned property" as used herein refers to the rights and interests that the state has entered into enterprises, the rights and interests that should be enjoyed after the investment by state-owned enterprises is formed, and other interests that the state has recognized as owned by the state . Specifically, it is as follows (Article 2, paragraph 3 of the transfer of state-owned property rights).
       
      · State-owned shares · equity in state-owned enterprises
      · Joint venture · cooperation in which state-owned enterprises are investing · shares and interests of the state-owned enterprises in foreign-invested enterprises
      · Property equivalent to the state-owned assets in companies that occupy and use state-owned assets in other formats
       
      ■ General Procedure for Acquisition of State-owned Enterprises
      [Determination of acquiree]
      Foreign investment industry banned industry list can not be bought. In addition, when acquiring a listed company it is necessary to apply to the State Council Securities Regulatory Authority.
       
      [Determination of evaluation method by evaluation office]
      The evaluation office prohibits the transfer at a clearly lower price than the evaluation result that can be selected from the evaluation organization established under the laws of China.
       
      [Determination of purchase price]
      A domestic company that sells state-owned assets must publish the purchase price on a national newspaper over a provincial level by 15 days before the investor submits the application form to the screening approval agency.
       
      [Payment of purchase price]
      Payment by foreign currency management department is required when paying the purchase price with Renminbi.
       
      [Submission of related materials]
      We must submit to the government agencies the resolution of shareholders meeting resolution, change application to foreign invested enterprises, application form for establishing foreign invested enterprises etc
       
      [Acquisition of business license]
      When a foreign investor acquires a domestic company and establishes a foreign investment enterprise, the examination agency will respond to the result within 30 days of receiving the application form and in case of approval an approval certificate will be issued.
       
      ■ General Procedure for Acquisition Other than State-owned Enterprises
       
      · Due due diligence to acquired company
      · Negotiation of acquisition conditions
      · Conclusion of acquisition agreement
      · Application for change of company name · corporate form
      · Acquisition of permission response and approval certificate for acquisition
      · Application for establishment of a foreign invested enterprise
      · Acquire business license
      · Payment of contribution consideration

    • Exit Strategy

      Below is a description of the risks arising in foreign companies after the investment in Chinese domestic companies and the measures to completely withdraw from the investment.
      There are political risks, personnel labor risks, etc. as risks to foreign companies after investment, and concrete exit strategies for foreign companies withdrawing from investment include selling shares, liquidating the company, transferring business etc. There is sale of business by.
       
      ■ Risks arising in foreign companies
      [Political Risk]
      The biggest risk in China is that the transparency and predictability of politics are low. Needless to say, government policy trends have a major impact not only at the time of acquisition but also after acquisition. In China, which tends to be developed and operated so that the law is convenient for laws, such as the factual export restrictions made by China after the collision of the Senkaku Islands China fishing boat in September 2010, it is impossible to complete the plan at the time of acquisition There is much gender.
      This also remarkably appeared during the Senkaku Islands nationalization in September 2012. Specifically, China may take various retaliatory measures due to the political situation, such as tightening or delaying customs clearance of imports from Japan, boycott of Japanese products, order cancellation to Japanese companies and transaction suspension .
      In addition, the risks arising from politics, such as unevenness of central government and local government institutions, and delays in the economic legal system, which are being improved, are still large. After the acquisition, the government's trends, the latest laws and regulations, Regarding trends of review organizations, we must always pay attention.
       
      [Personnel labor risk]
      As a matter of practical problem to face after acquisition of company, there is personnel labor risk. Some corporations need to reduce personnel after acquiring businesses with the aim of increasing the effectiveness and efficiency of management, but special attention is needed in China to reduce personnel.
      China has a labor contract law to protect and strengthen the rights of workers. Including provisions such as extending employment of employees to companies.
      Furthermore, in China there is no grounds for statutory dismissal, it can not be dismissed (Article 39 to 41 of the labor contract law).
      For example, in Article 41 of the Labor Contract Law, in the case of the following four circumstances concerning the reduction of headcount (organized dismissal), if the number of reduced persons is 20 or more, or less than 20, but 10% or more of the total number of total employees, Accountability is imposed on employers to unions or employees as a whole.
       
      · Company restructuring under the provisions of the corporate bankruptcy law
      · When significant difficulties occur in production and management
      · When there are changes in the product industry, significant technical innovation and adjustment of the management method, and it is necessary to reduce staff even after labor contract change
      · When there is a serious change in the objective economic situation that was relying on the conclusion of other labor contracts and it becomes impossible to fulfill the labor contract
       
      When actually reducing personnel, it is required to report the personnel reduction plan to the labor administration department after hearing the opinions of labor unions or employees. In this way, we are restricting personnel reductions due to unfair reasons and we are trying to protect the rights of workers.
      We are trying to protect the rights of workers in regard to the selection of such reductions. Specifically, workers who have concluded a labor contract with a fixed term for a relatively long period, workers who have contracted labor contracts without a fixed term, households do not have other workers, and elderly people It is stipulated that those who need to support minors or minors should not be dismissed.
      In this way, it is expected that it will be difficult to flexibly reduce staffing in China, so it is necessary to actively utilize outsourcing and respond by adjusting labor contract period etc. .
      Also, in case of dismissal due to organized dismissal or bankruptcy, paying attention to the obligation to pay economic compensation according to the length of service in principle is necessary.
      Unlike the old Labor Law, even though employees wish to renew their labor contracts at the end of the labor contract period, even if the enterprises do not renew their labor contracts, the New Labor Law enforced on January 1, 2008, In principle, it is necessary to pay economic compensation.
      However, in spite of employers wishing to renew their labor contracts on conditions equal to or better than before, there is no need to pay economic compensation when employees retire.
       
      ■ Company liquidation
      [Sale of shares]
      Under the Income Tax Law, if the consideration acquired through the transfer of shares exceeds the acquisition cost of the shares, capital / gain tax is imposed on the transfer company of the shares. If capital / gain taxation occurs, the share transfer company must withhold this. In addition, in the case of selling stocks of listed companies through a stock exchange, securities transaction tax is imposed.
       
      [Dissolution of company]
      Dissolution of a company is a procedure of liquidating the assets and liabilities of the company and eliminating the company's corporate status. The company dissolution procedure is as follows.
       
      · In case of intentionally dissolving a foreign-invested enterprise, in principle, the highest resolution agency of the relevant company resolves to dissolve and is approved by the competent commercial department (Article 104 of the Companies Act).
      · Foreign invested enterprises shall establish a clearing committee and commence the liquidation procedure within 15 days from the date of receiving approval of dissolution of the competent commerce department concerning dissolution (Article 184).
      · The Clearing Committee submits the list of members to the industrial sector within 10 days from the date of establishment (Article 186).
      · The Clearing Committee notifies the obligee of the claim of the claim, creates the balance sheet and the property schedule, sets up the liquidation plan, reports it to the company's highest power authority or People's Court, and asks for examination (185 ~ 187).
       
      In addition, we pay dividing costs, employee's wages, statutory compensation etc. with the property of the company, paid unpaid taxes, and distribute the residual assets after paying off the company's debt according to the shareholder's ownership ratio Become.
       
      · After the liquidation is completed, the Liquidation Committee prepares a liquidation report, after confirming the company's highest resolution or the People's Court, deregisters at the industrial and commercial sector and makes a public notice of the company's completion (Article 189) .
       
      In addition, the following documents are required for deletion registration.
       
      · Application form for deletion of foreign enterprise invested enterprise signed by the head of clearing team
      · Permission documents to agree to cancel the screening authority
      · Resolutions or decisions made based on law
      · A settlement report confirmed by the Organizational Power Organization or the Court
      · Certificate of deletion registration of minute company
      · Original and duplicate of business license
       
      ■ Business sale by business transfer etc.
      By transferring business or merging, you can choose how to sell the business of the Chinese company of the investee to another company.
      In the case of business transfer, the consideration of the business sold will be paid to the domestic Chinese company of the investee, so in order to recover this money eventually by the foreign company shareholders, further procedures such as liquidating the Chinese domestic company are required .
      In the case of a merger, shares of the surviving company of the merger will be allocated, so we need procedures to dispose of them. Mergers and acquisitions such as the importance of personnel affairs after integration involve many uncertainties. And because that uncertainty factor leads to problems of employee's occupational stability, there is a risk of leading to moral decline of employees after the merger.
      Generally speaking, it is said that 80% of M & A companies do not produce any value after M & A, rather they lose more than half of corporate value before the merger. Therefore, when doing M & A, it is necessary to take measures such as establishing a cooperative system with appropriate law / accounting experts from the early planning stage. It is important to continue to cooperate with such experts even after M & A ends. Especially in countries where the law is unclear and underdeveloped like China, it is necessary to pay attention to carefully conducting risk management before and after M & A.