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.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
Armstrong (2018).
- 2.
European Parliament (2018).
- 3.
Tella (2019).
- 4.
Armour and Skeel (2007).
- 5.
Huang (2019).
- 6.
For introduction of facts of the Vanke takeover battle (by Baoneng).
- 7.
Armour and Skeel (2007).
- 8.
Lee (2017).
- 9.
Xi (2015).
- 10.
National Statistics (2016).
- 11.
Lee (2017).
- 12.
The Takeover Panel (2020).
- 13.
Takeover Code, General Principle 5, Rule 24.16 and Rule 25.8.
- 14.
Bodnaruk et al. (2009).
- 15.
Ibid.
- 16.
Ibid.
- 17.
Liu and Lou (2016).
- 18.
Ibid.
- 19.
Ibid.
- 20.
Takeovers Code, Rule 19.
- 21.
Takeovers Code, Rule 24.8.
- 22.
Takeovers Code, Rule 24.10.
- 23.
Takeovers Code, Rule 3.1 and Rule 26.3.
- 24.
Takeovers Code, Rule 3.3 and Rule 16.2.
- 25.
Takeovers Code, Rule 25.2 (a).
- 26.
Kershaw (2016).
- 27.
Servaes and Zenner (1996).
- 28.
Takeovers Code, Rule 9.5.
- 29.
Han (2017).
- 30.
- 31.
National Bureau of Statistics of China (2018).
- 32.
Xi (2006).
- 33.
As of 2018, the market value of funds in China amounted to 130 billion.
- 34.
Xi (2006).
- 35.
Ibid.
- 36.
Ibid.
- 37.
The figure was 19.86% in accordance to the survey report conducted by OECD in 2017.
- 38.
WFE data in 2016; also see OECD Survey of Corporate Governance Frameworks in Asia 2017.
- 39.
Corporate Governance Code of China’s Listed Companies, Art. 78, 79, 80, 81 & 82.
- 40.
Chinese-Foreign Equity Joint Ventures Law, Art. 4.
- 41.
See ‘Notice Concerning the Relevant Issues on Strengthening the Approval, Registration, Foreign Exchange Control and Taxation Administration of Foreign-Funded Enterprises (2003)’.
- 42.
Foreign Investment Law, Art. 21.
- 43.
Schaub et al. (2019).
- 44.
Foreign Investment Law, Article 9.
- 45.
Koty (2019).
- 46.
Xin Hua News (2018).
- 47.
Securities Law (2019 revision), Art. 63.
- 48.
Securities Law (2019 revision), Art. 68.
- 49.
Shen (2014).
- 50.
Sender (2011).
- 51.
SMEs as the creators of 60% of China’s GDP only enjoy 30% share of bank loans.
- 52.
China Banking News (2018).
- 53.
Huang (2019).
- 54.
Opinions on Promoting Enterprise Merger and Restructuring, Article 1.
- 55.
The State Council (2014a).
- 56.
Shen (2016).
- 57.
Zhu (2004).
- 58.
Ibid.
- 59.
Loubere and Zhang (2015).
- 60.
Ibid.
- 61.
Shen (2016).
- 62.
Ibid.
- 63.
See ‘Notice on Further Improving the Quality and Effect of Financial Services for Micro and Small-sized Enterprises in 2019’.
- 64.
Coffee (2001).
- 65.
The Investment Association (2018).
- 66.
- 67.
For detailed discussions, see Paul (1993).
- 68.
- 69.
For detailed discussion, see Andrew (2014).
- 70.
Davis (2015).
- 71.
- 72.
Ibid.
- 73.
The Investment Association (2019).
- 74.
Ibid.
- 75.
Armour et al. (2009).
- 76.
Davis (1993).
- 77.
Ibid.
- 78.
Ibid.
- 79.
OECD (2011).
- 80.
Armour and Skeel (2007).
- 81.
Huang and Chen (2018).
- 82.
Kershaw (2016).
- 83.
Ibid.
- 84.
LEX (2012).
- 85.
Charkham (1989).
- 86.
Financial Reporting Council (2020).
- 87.
Ibid.
- 88.
Bishop and Kay (1989).
- 89.
Shahid et al. (2005).
- 90.
Huang and Chen (2018).
- 91.
Lee (2017).
- 92.
Ibid.
- 93.
Ibid.
- 94.
The Investment Association (2017).
- 95.
Takeovers Code, Rule 21.1.
- 96.
Takeovers Code, Rule 9.1.
- 97.
Takeovers Code, Rule 24.16.
- 98.
Lee (2017).
- 99.
Takeovers Code, Rule 2.2.
- 100.
Takeovers Code, Rule 24.16, Rule 25.8.
- 101.
Cassis and Wojcik (2018).
- 102.
Franks and Mayer (2017).
- 103.
Lee (2017).
- 104.
Reisberg (2015).
- 105.
The UK Stewardship Code, Principle 2.
- 106.
- 107.
Steinitz (2012).
- 108.
Ibid.
- 109.
Lee (2017).
- 110.
Ibid.
- 111.
Ibid.
- 112.
CCP (1982).
- 113.
- 114.
Bebchuk et al. (1999).
- 115.
Xianchu (2003).
- 116.
Wolff (2004).
- 117.
Ibid.
- 118.
The State Council of China (2014) Opinions on further Optimising M&A Market Conditions.
- 119.
SASAC (2013).
- 120.
Report on China’s Corporate Governance 2009: The Market for Corporate Control and Corporate Governance. Fudan University Press.
- 121.
Ibid.
- 122.
Chi et al. (2009).
- 123.
The State Council (2010).
- 124.
Ibid.
- 125.
Xi (2015).
- 126.
Huang and Chen (2018).
- 127.
- 128.
Measures for the Administration of the Takeover of Listed Companies, Article 8 & 33.
- 129.
- 130.
Ibid.
- 131.
Xi (2015).
- 132.
Lin et al. (2017).
- 133.
Bagwell (1991).
- 134.
Lee (2017).
- 135.
Milhaupt (2015).
- 136.
Qiu (2017).
- 137.
People’s Bank of China and the CSRC (2018).
- 138.
Zhang (2008).
- 139.
- 140.
Measures for Takeovers 2014, Art. 61.
- 141.
Ibid.
- 142.
Ibid.
- 143.
Measures for Takeovers 2014, Article 24.
- 144.
- 145.
Measures for Takeovers 2014, Article 25.
- 146.
- 147.
Measures for Takeovers 2020, Art. 61.
- 148.
Measures for Takeovers 2020, Art. 62 & 63.
- 149.
Xi (2015).
- 150.
Securities Law (2019 Revision), Art. 65.
- 151.
Measures for Takeovers 2020, Art. 24.
- 152.
Securities Law (2019 Revision).
- 153.
Code of Corporate Governance for China’s Listed Companies (2019 Revision).
- 154.
Huang and Chen (2018).
- 155.
Lee (2017).
- 156.
Ibid.
- 157.
Kershaw (2016).
- 158.
Ogowewo (2007).
- 159.
The Takeover Panel (2020).
- 160.
Kershaw (2016).
- 161.
Nyombi (2015).
- 162.
Ibid.
- 163.
Department for Business (2012).
- 164.
Kershaw (2016).
- 165.
Lee (2017).
- 166.
Ibid.
- 167.
Kershaw (2016).
- 168.
Lee (2017).
- 169.
Ibid.
- 170.
Guanghua and Minkang (2001).
- 171.
Hui (2014).
- 172.
Ibid.
- 173.
Guanghua (2005).
- 174.
Huang and Chen (2018).
- 175.
Ibid.
- 176.
Xi (2015).
- 177.
Measures for Takeovers 2002, Article 49.
- 178.
Measures for Takeovers 2002, Article 34.
- 179.
Measures for Takeovers 2002, Article 13, 14 and 23.
- 180.
Xi (2015).
- 181.
Measures for Takeovers 2002, Article 13.
- 182.
Measures for Takeovers 2006, Article 24 and 25.
- 183.
The State Council (2014b).
- 184.
Ibid.
- 185.
- 186.
Measures for Takeovers 2006, Article 8 and 24.
- 187.
Measures for Takeovers 2006, Article 49.
- 188.
Hua (2007).
- 189.
Measures for Takeovers 2002, Article 13.
- 190.
Measures for Takeovers 2002, Article 49.
- 191.
For the detailed discussions, see Sect. 3 of this chapter.
- 192.
- 193.
Ibid.
- 194.
Ibid.
- 195.
Ibid.
- 196.
James (2019).
- 197.
Ibid.
- 198.
Huang and Chen (2018).
- 199.
Ibid.
- 200.
Caixin (2017).
- 201.
Huang (2019).
- 202.
China Daily (2017).
- 203.
An Ran (2017).
- 204.
Ibid.
- 205.
Sheng (2017).
- 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.
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.
Xi (2015).
- 209.
Guofeng and Junyi (2015).
- 210.
CBRC (2018).
- 211.
Ibid.
- 212.
Ibid.
- 213.
Measures for Takeovers 2020, Article 4.
- 214.
Weilin et al. (2017).
- 215.
Sheffield Political Economy Research Institute (2017).
- 216.
Foreign and Commonwealth Office (2017).
- 217.
Ibid.
- 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.
Lee (2017).
- 220.
Ibid.
- 221.
- 222.
James (2019).
- 223.
- 224.
Xi (2015).
- 225.
Ibid.
- 226.
Ibid.
- 227.
Ibid.
References
An Ran (2017) The future of Vanke after new SOE alliance. https://cbk.bschool.cuhk.edu.hk/the-future-of-vanke-after-new-soe-alliance/. Accessed 20 May 2020
Andrew H (2014) The age of asset management? Bank of England
Armour J, Skeel D (2007) Who writes the rules for hostile takeovers, and why? The peculiar divergence of US and UK takeover regime. Georgetown Law J 95:1727–1794
Armour J et al (2002a) Corporate ownership and the evaluation of bankruptcy law in the US and UK. http://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp226.pdf. Accessed 12 Aug 2020
Armour J et al (2002b) Corporate ownership and the evaluation of bankruptcy law in the US and UK. ESRC Centre for Business Research, University of Cambridge, Working Paper No. 226
Armour J et al (2009) Agency problems and legal strategies. In: Kraakman R et al (eds) Anatomy of corporate law, 2nd edn. Oxford University Press
Armstrong K (2018) Regulatory alignment and divergence after Brexit. J Eur Publ Policy 25:1099–1117
Bagwell L (1991) Share repurchase and takeover deterrence. RAND J Econ 22:72–88
Bebchuk L et al (1999) A theory of path dependence in corporate ownership and governance. Stanf Law Rev 52:132
Bishop M, Kay J (1989) Privatization in the United Kingdom: lessons from experience. World Dev 17:643–657
Bodnaruk A et al (2009) Investment banks as insiders and the market for corporate control. Rev Financ Stud 12:4989–5026
Cai W (2011a) Anti-takeover provisions in China: how powerful are they? Int Company Law Rev 22:314
Cai W (2011b) The mandatory bid rule, hostile takeovers and takeover defenses in China. SJD Thesis
Caixin (2017) Baoneng backs off from fight over Vanke’s control. https://www.caixinglobal.com/2017-01-14/baoneng-backs-off-from-fight-over-vankes-control-101044053.html. Accessed 20 May 2020
Cassis Y, Wojcik D (2018) International financial centres after the global financial crisis and Brexit, 1st edn. Oxford University Press, pp 9–14
CBRC (2018) Measures for the administration of wealth management subsidiary companies of commercial banks
CCP (1982) The decision on several issues regarding establishing a socialist market economy. The 3rd Plenary Session of the 14th National Congress of the CCP, 1992
Charkham J (1989) Corporate governance and the market for companies: aspects of the shareholders’ role. Bank of England Discussion Paper, No. 44
Chi J et al (2009) Performance and characteristic of acquiring firms in the Chinese stock markets. Massey University Working Paper
China Banking News (2018) Shadow banking is a necessary adjunct to China’s financial markets: PBOC Head
China Daily (2017) China resources to sell entire Vanke Stake to Shenzhen Metro. http://www.chinadaily.com.cn/business/2017-01/13/content_27941918.htm. Accessed 20 May 2020
Chinese-Foreign Equity Joint Ventures Law, Art. 4
Coffee J (2001) The rise of dispersed ownership: the role of law and the state in the separation of ownership and control. Yale Law Rev 111:1–82
Corporate Governance Code of China’s Listed Companies, Art. 78, 79, 80, 81 & 82
Davis P (1993) Institutional investors in the United Kingdom. In: Theodor B, Richard B, Klaus H (eds) Institutional investors and corporate governance, 1st edn. de Gruyter, Berlin
Davis P (2015) Shareholders in the United Kingdom. ECGI working paper series in law, no. 280/2015
Department for Business (2012) Innovation and skills ensuring equity markets support long-term
European Parliament (2018) Future trade relations between the EU and the UK: options after Brexit. https://www.europarl.europa.eu/RegData/etudes/STUD/2018/603866/EXPO_STU(2018)603866_EN.pdf. Accessed 13 Aug 2020
Financial Reporting Council (2020). https://www.frc.org.uk/investors/uk-stewardship-code. Accessed 20 May 2020
Foreign and Commonwealth Office (2017) China: state owned enterprises reform. https://www.gov.uk/government/publications/china-economy-chinas-soe-reform-since-the-third-plenum-august-2014/china-economy-chinas-soe-reform-since-the-third-plenum-august-2014. Accessed 20 May 2020
Franks J, Mayer C (2017) Evolution of ownership and control around the world: the changing face of capitalism. Said Business School, University of Oxford Research Paper, p 19
Guanghua Y (2005) Does one size fit all? Transplanting English takeover law into China. In: Lehman C (ed) Corporate governance: does any size fit? 1st edn. Elsevier, Amsterdam, p 49
Guanghua Y, Minkang G (2001) Law affecting business transactions in the PRC, 1st edn. Kluwer Law International, p 88
Guofeng S, Junyi J (2015) Defining China’s shadow banking and assessing its scale – seen in term of the creation of credit money. Soc Sci China 11:97–98
Han M (2017) Twin peaks regulation after the global financial crisis: a reform model for China. Asian J Law Econ 8:1–30
Hua Y (2007) Takeover and restructuring and value creation of the listed companies, 1st edn. China Financial Publishing House, p 70
Huang H (2019) The rise of hostile takeovers and defensive measures in China: comparative and empirical perspective. Eur Bus Organ Law Rev 20:363–398
Huang H, Chen J (2018) Takeover regulation in China: striking fair balance between takeover contestability and shareholder protection. In: Umakanth B, Wai W (eds) Comparative takeover regulation: global and Asian perspective, 1st edn. Cambridge University Press, p 226
Hui H (2014) Securities and capital markets law in China, 1st edn. Oxford University Press
Hui H (2019) The rise of hostile takeovers and defensive measures in China: comparative and empirical perspective. Eur Bus Organ Law Rev 20:363–398
James Z (2019) Regulating draconian takeover defences with soft law: empirical evidence from event studies in China. Eur Bus Organ Law Rev 20:823–854
Kershaw D (2016) Principle of takeover regulation. Oxford University Press
Koty A (2019) China’s new foreign investment law. Dezan Shira & Associates
Lee J (2017) Striking a fair balance in UK takeover law: market interests, power of regulation, and enforcement. Eur Bus Law Rev 4:840–852
LEX (2012) Roche/Illumina: take a Chill Pill
Lin W et al (2017) The Vanco takeover – revisiting the takeover defences regulation in China. Company Lawyer 38:153–154
Liu Y, Lou J (2016) Asset managing plans in corporate mergers. Tsinghua Law Rev 6:64
Loubere N, Zhang H (2015) Co-operative financial institutions and local government in China. J Co-operative Organ Manag 3:32–39
Milhaupt C (2015) In the shadow of Delaware? The rise of hostile takeovers in Japan. Columbia Law Rev 105:2171–2216
National Bureau of Statistics of China (2018). http://data.stats.gov.cn/easyquery.htm?cn=C01. Accessed 20 May 2020
National Statistics (2016) Ownership of UK quoted shares. https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2016. Accessed 20 May 2020
Nyombi C (2015) A critique of shareholder primacy under the UK takeover law and the continued imposition of the board neutrality rule. Int J Law Manag 57:235–264
OECD (2011) The role of institutional investors in promoting good corporate governance. OECD Publishing
Office for National Statistics (2018a). https://www.ons.gov.uk/economy/investmentspensionsandtrusts/bulletins/ownershipofukquotedshares/2018#rest-of-the-world. Accessed 20 May 2020
Office for National Statistics (2018b) Ownership of UK quoted shares 2018. https://www.ons.gov.uk/releases/ownershipofukquotedshares2018. Accessed 20 May 2020
Ogowewo T (2007) Tactical litigation in takeover contests. J Bus Law:589–619
Opinions on Promoting Enterprise Merger and Restructuring, Article 1
Paul D (1993) Institutional investors in the United Kingdom. In: Theodor B, Richard B, Klaus H (eds) Institutional investors and corporate governance, 1st edn. de Gruyter, Berlin
People’s Bank of China and the CSRC (2018) Guiding opinions on strengthening the regulation of non-financial enterprises investing in financial institutions, Article 9
Qiu Z (2017) The dilemma of the cross-shareholding structure and the proposal for regulatory improvement. Legality Vision 3:100
Reisberg A (2015) The UK Stewardship Code: on the road to nowhere? J Corporate Law Stud 12:217–253
SASAC (2013). http://finance.people.com.cn/n/2013/1220/c70846-23901072.html. Accessed 20 May 2020
Schaub M et al (2019) China signals improvements for foreign investors. Paper posted on Foreign Investment, King & Wood Mallesons
Sender H (2011) Monetary tightening by China to be felt across globe. Financial Times
Servaes H, Zenner M (1996) The role of investment banks in acquisitions. Rev Financ Stud 3:787–815
Shahid Y et al (2005) Under new ownership: privatising China’s state-owned enterprises, 1st edn. World Bank and Stanford University Press, p 5
Sheffield Political Economy Research Institute (2017) The political economy of Brexit and the UK’s national business model. Research Paper No. 41
Shen W (2014) The risk of China’s shadow banking and selection of regulatory tools. China Legal Sci 4:151–177
Shen W (2016) Regulating wealth management products. In: Shadow banking in China: risk, regulation and policy, 1st edn. Edward Elgar, p 104
Sheng H (2017) Control and governance with Vanke Style, 1st edn. Oriental Publishing, p 148
Steinitz M (2012) The litigation finance contract. William Mary Law Rev 2:455, 518
Tella S (2019) Optimal regulation of financial intermediaries. Am Econ Rev 109:271–313
The Investment Association (2017) Asset management in the UK 2016–2017: the Investment Association Annual Survey
The Investment Association (2018) Asset management in the UK 2017–2018: the Investment Association Annual Survey
The Investment Association (2019) Investment management in the UK 2018–2019: the Investment Association Annual Survey
The State Council (2010) Opinions of the State Council on Promoting Enterprise Merger and Restructuring
The State Council (2014a) Notice on issuing the guidelines for the risk management of merger and acquisition loans granted by commercial banks. Article 1
The State Council (2014b) Opinions of the State Council on Promoting Enterprise Merger and Restructuring
The State Council of China (2014) Opinions on further optimising M&A market conditions
The Takeover Panel (2020). http://www.thetakeoverpanel.org.uk/structure/panel-membership. Accessed 20 May 2020
Weilin W et al (2017) The Vanco takeover – revisiting the takeover defences regulation in China. Company Lawyer 38:153–154
WFE data in 2016; also see OECD Survey of Corporate Governance Frameworks in Asia 2017
Wolff L (2004) Making perfect corporate governance rules: mission impossible? Corporate Governance Int 7:21
Xi C (2006) Institutional shareholder activism in China: law and practice. Int Company Commercial Law Rev 17:1–35
Xi C (2015) The political economy of takeover regulation: what does the mandatory bid rule in China tell us? J Bus Law 12:142–164
Xianchu Z (2003) Globalization of corporate governance and lessons from emerging economies. In Zhipan W, Michiyo H (eds) Corporate governance and capital markets supervision, 1st edn. Peking University Press, pp 82, 109
Xin Hua News (2018). http://www.xinhuanet.com/politics/2018-04/10/c_1122660064.htm. Accessed 20 May 2020
Zhang Z (2008) Studies in the regulation of corporate takeover defences. PhD thesis, China University of Political Science and Law
Zhu H (2004) Replacement of senior managers and firm performance. Econ Sci 4:91
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2021 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
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
Download citation
DOI: https://doi.org/10.1007/978-3-030-72345-3_2
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-72344-6
Online ISBN: 978-3-030-72345-3
eBook Packages: Law and CriminologyLaw and Criminology (R0)