The value of knowledge

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In China’s soaring outbound investment, many private and state-owned enterprises have shown huge interest in foreign technologies. Chinese companies need advanced tech to fare better against fierce competition both at home and abroad. But since technology underpins the strength of modern countries, purchasing intellectual advantages is deemed by many to be tougher than other deals.

cblj-1609-prologueThe September issue of China Business Law Journal keeps track of this trend. Brain campaign explores if overseas regulatory hurdles are really that challenging. Many leading countries in tech research and development appear open to foreign investment in their technology-intensive businesses, but they may have regulatory requirements, such as antitrust reviews, that could hobble acquisitions in any sector. Some powerful regulators may even have global reach, such as the Committee on Foreign Investment in the United States, which could invalidate your transaction outside the US.

Tech buyers also have to carry out careful due diligence, especially for intellectual property (IP), as the possible complex webs of ownership and licensing can make it hard to benefit from the technologies you need. The negotiation process is vital to fighting for a deal, and requires practical skills in managing the process and addressing the sellers’ concerns. In the campaign of purchasing others’ fruits of wisdom, your own knowledge is also important.

M&A: Hot & cold focus on mergers and acquisitions (M&A) in China. Opportunities in the domestic market abound, but mainly for Chinese buyers. Economic slowdown, intense competition and market uncertainties have led foreign investors’ inbound M&A to be lukewarm, say legal experts, but the central government continues to loosen strings to encourage foreign investment in the country.

For Chinese companies, the central government’s resolve to reform state-owned enterprises has prompted these companies to carry out consolidation and reorganization. Another reason for the M&A boom is the pursuit of reverse mergers by many companies, including those returning from overseas, that are impatient to wait in the super-long queue for listing on the A-share market. But regulators have taken action to cool down this over-heated trend, and those seeking to merge with listed companies should be aware of the latest updates.

Alibaba recently became the target of the US Securities and Exchange Commission (SEC) in an investigation into its accounting practices. The issues under enquiry are specific to Alibaba, but it once again brings into the spotlight general compliance issues on US capital markets. Since the rash of financial scandals a few years ago, the overall compliance performance of US-listed Chinese companies may have improved, but the close scrutiny and strict rules of the SEC in that alien market continues to loom large for them. Eagle eyes provides Chinese companies with knowledge about the most important legal and compliance issues on US capital markets.