China’s Takeover Law: A Comparative Analysis and Proposals for Reform

Abstract

This article is largely prompted by the two recently promulgated regulations governing takeovers in China. The goal of this article is to critically examine the legal takeover regime in China and to put forward proposals for reform. To outline the discussion, Part II describes the stock market, the takeover law, and the takeover activities in China. Two legislative goals, namely contestability of takeovers and shareholder protection, are set out in Part III. Under these principles, Part IV and Part V explore the issues of tender offer and anti takeover defenses, respectively. Specifically, Part IV focuses on information disclosure and other major rules relating to takeovers. It appears that these rules are in line with the international norm and acceptably workable in the context of China. Furthermore, Part V explores the serious problems that are associated with anti-takeover defenses. China's law seems to be both over inclusive and under inclusive in this respect. After an in depth comparative analysis of the legal regimes in the U.S., UK, and Australia, it is apparent that those regimes are not suitable for China's local conditions. Lastly, this article proposes a regime in which shareholders could veto the use of takeover defenses ex post, while requiring that certain defensive measures be decided ex ante. This proposal could well suit China's needs because it not only gives shareholders sufficient protection, but also preserves necessary flexibility for management to efficiently respond to truly undesirable tender offers.