Human Asset Management: Employment Issues in M&A Deals

By Emma Davies, Partner and Shi Wei, Senior Associate, Clifford Chance, Shanghai

As most readers are doubtless aware, more and more foreign investors today are opting to invest in China by acquisitions of existing companies rather than by establishing greenfield foreign-invested enterprises (FIEs). The Chinese government has enacted several new pieces of legislation in support of this trend. The most important are: Acquisition of Domestic Enterprises by Foreign Investors Tentative Provisions (the M&A Tentative Provisions), which apply when buying any type of Chinese company and have been effective since April 12 2003; Using Foreign Investment to Reorganize State-owned Enterprises Tentative Provisions (the SOE Reorganization Provisions), which apply when buying a state-owned enterprise and have been effective since January 1 2003; and the Administration of the Assignment of Enterprise State-owned Assets and Equity Tentative Procedures (Assignment of State-owned Assets Tentative Provisions), which also apply when buying a state-owned enterprise and have been effective since February 1 2004.

One key reason why foreign investors are interested in buying a Chinese company is to acquire the management team and workforce. The key staff in local companies often have unique knowledge about the local market, their customers and reliable sources of supply, and/or have developed interesting technologies that can be exploited both in China and overseas.