CHINA Trends and Developments Contributed by: Bing Zhai, Commerce & Finance Law Offices
These guidelines emphasise the critical role of intermediaries as “gatekeepers” and highlight the CSRC’s unwavering commitment to enforc - ing the New Nine National Guidelines. They also demonstrate the regulator’s resolve to curb mar - ket misconduct, protect investor interests and maintain market order. By holding intermedi - aries accountable and encouraging enhanced internal controls, these guidelines reinforce the importance of regulatory compliance and inves - tor protection in fostering a fair and transparent capital market. This aligns with the broader poli - cy objectives of promoting high-quality develop - ment and ensuring the stability of China’s M&A market. The Six M&A Guidelines: market-oriented reforms and efficiency enhancements On 24 September 2024, the CSRC introduced the Six M&A Guidelines, marking a significant step towards market-oriented reforms and effi - ciency improvements in the M&A landscape. These guidelines provide greater flexibility for cross-industry M&A and the acquisition of non- profitable assets, particularly in emerging and technology-driven sectors. Listed companies, especially those on the Sci-Tech Innovation Board (STAR) Market and ChiNext, are encour - aged to pursue acquisitions that strengthen their industrial chains, enhance technological capa - bilities or support industrial transformation, pro - vided they demonstrate sound commercial logic and operational compliance. The guidelines also allow for the acquisition of high-quality, non- profitable assets that contribute to supply chain resilience or technological advancement, as long as such transactions safeguard minority inves - tors’ interests and do not impair the acquirer’s ongoing operations. To promote long-term investment, the guide - lines introduce “reverse hook” mechanism for
private equity funds, linking the lock-up period of shares acquired through M&A to the dura - tion of the fund’s prior investment in the target company. This incentivises private equity funds to support the growth of target companies before exiting through M&A, fostering a sustain - able investment cycle. At the regulatory level, the guidelines emphasise increased tolerance and flexibility, supporting diversified valuation methods, optional performance commitments for third-party acquisitions and varied payment tools. They also relax criteria for industry compe - tition and related-party transactions, permitting deals that do not significantly harm the com - pany’s independence or fairness. By streamlining processes and balancing market efficiency with investor protection, the Six M&A Guidelines aim to drive high-quality develop - ment and resource optimisation in China’s capi - tal markets. The Eight Guidelines for the STAR Market: fostering innovation and industrial integration On 19 June 2024, the Eight Measures on Deep - ening the Reform of the STAR Market to Serve Technological Innovation and the Development of New Quality Productivity (the “Eight Guide- lines for the STAR Market” ) were introduced to further support M&A activities, particularly among STAR Market-listed companies by the CSRC. These guidelines aim to foster innovation and industrial integration by encouraging com - panies to engage in upstream and downstream industrial chain consolidations and acquire high- quality, unprofitable “hard-tech” enterprises. Key measures include strengthening the STAR Mar - ket’s focus on hard-tech enterprises, optimising financing mechanisms and enhancing M&A valu - ation flexibility. The guidelines also emphasise the use of diverse payment tools, such as con - vertible bonds, to facilitate transactions, while
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