Beijing Trims M&A Approval Times, Export Incentives

Two separate reports are showing that Beijing is working hard to improve relations with its major trading partners, as central leaders try to rebalance the economy and put it on a more stable long-term footing. In a move with big implications, media are saying the Chinese agency that approves M&A is sharply reducing the time for its reviews, in a welcome signal for companies that sometimes see their global deals delayed for months due to slowness from the Chinese regulator. The second news bit has China and the European Union reaching a deal to end a trade spat in the telecoms equipment sector, which had seen the EU threaten to levy anti-dumping tariffs against Chinese heavweights Huawei and ZTE (HKEx: 763; Shenzhen: 000063).

These 2 moves collectively seem to show that Beijing may be tiring of the steady stream of recent high-profile spats with its major trading partners, and wants to remove this kind of headache as it focuses on the much bigger task of rebalancing its economy. Reducing the high levels of state support that many exporters now receive will ultimately benefit domestic players like Huawei by forcing them to be more competitive rather than relying on hand-outs from Beijing. Quicker approval of M&A deals will also eliminate a grievance among big foreign companies, which complain that slow reviews by China’s regulator costs them big money by slowing down deals.

On that note, let’s look at the first of the 2 headlines that says that China’s Ministry of Commerce (MOFCOM) has recently taken steps to reduce its approval time for major global M&A, after it started conducting reviews for major deals in 2009. (English article) Reacting to criticism that it takes too long to approve deals that often have few implication for competition in China, MOFCOM rolled out a new procedure in April that fast-tracks the review process for smaller deals that are unlikely to have any big impact.

Following the introduction of that policy, the average time for approval of cases has dropped by about half, according to the reports. Deals that qualified for the new fast-track approval moved forward with lightning speed, requiring an average approval time of just 26 calendar days since the change took place. MOFCOM also moved to boost its transparency this month by publishing a comprehensive data set detailing transaction filings and approval dates for all major M&A.

I’ve been a frequent critic of MOFCOM for its slowness in approving some deals, which at times can take nearly a year and sometimes carry political overtones. The regulator often seems to often favor local firms over foreign companies, slowing down or even blocking approval for deals involving multinationals when Chinese companies complain. This new campaign indicates that kind of politics and foot-dragging may soon disappear, though we’ll have to wait for future major deals to see how serious MOFCOM really is.

Next let’s look at the other major headline that has China and the EU reaching a landmark deal that will avoid anti-dumping tariffs that Europe had threatened over accusations of unfair government support for Huawei and ZTE. (English article) Reports of this deal first emerged last week, and followed 2 years of complaints from the EU over unfair support for the Chinese companies in the form of policies like state-supplied low-interest financing for foreign firms that purchased equipment from China.

Such support had helped Huawei to win 25 percent of the EU telecoms equipment market, up sharply from 2.5 percent in 2006, as it stole share from local industry giants Ericsson (Stockholm: ERICb), Alcatel-Lucent (Paris: ALUA) and Nokia (Helsinki: NOK1V). Under the new agreement, China will reduce the export credits that it now gives to Huawei, ZTE and other equipment makers, a move that should force them to raise their prices to levels more in line with the European equipment makers.

These 2 latest developments appear to be part of a newer attitude by Beijing, which previously paid little notice to the concerns of foreign companies and governments as it focused on building up its own industries. We’ve seen other similar positive signals of change, including an attempt at greater transparency in a recent string of antitrust investigations that appeared to target foreign multinationals. If the trend continues, it could mark the start of a new period of a more conciliatory, cooperative stance by Beijing in its volatile trade relations with the west.

Bottom line: A new trade settlement between the EU and China, and recent steps by the M&A regulator to streamline its reviews could reflect Beijing’s attempts to launch a new era of better relations with its major trading partners.