China: Cross Border Transactions -- How Many Hardships does China Need to Overcome?

Last Updated: 29 September 2012
Article by Rupert Li

People frequently observe the cultural barriers which the Chinese companies find difficult to overcome in relation to China's nascent outbound investment program. Since China is culturally and politically different from the mainstream trading countries, an attribution of the anguish on both sides of the negotiation table to cultural barriers is indeed tempting but often misplaced. Any professionals operating in places other than in the rule setting non Anglo-American jurisdictions always have war stories to share with their colleagues. The Mexican tycoons prefer to negotiate their deals in the smoking rooms of their vast hacienda guarded by private soldiers. The Indians nod to signify their disapproval and shake their heads for approval, or sometimes vice versa. The Japanese entertain their foreign guests with stylized geisha dance and ocean dainties of whale meat and blow fish. These cultural idiosyncrasies would make our deal process more memorable, but they seldom torpedo deals as our professionals and their principals have rarely retreated from a deal purely on the ground of local habits which repel their sensibilities. Many have spent their formative years in august institutions learning foreign languages or foreign business practices ranging from Sharia law of the Middle East to China's Labyrinth of approval procedures. Companies have become nimble and adaptive while operating in foreign countries and they have soldiered on to make big profits in spite of occasional cultural clashes with their local partners, local staff and local regulators.

Japan made its massive investment in the US and around the world in the 80's and 90's in the last century. US and Europe deployed huge capital across into China in the last two decades. Neither had an easier time to transcend cultural barriers. While no one has come out perfect, few regrets have been heard from either business community. It is safe to infer that cultural barries are problems universal to all investors in foreign countries, but they are surmountable hurdles. If we are trying to debunk the myth of what is frustrating the Chinese companies' objectives in their pursuit of global reaches, we may have to look beyond the commonality of cultural barriers and ascertain those constraints relevant only to the Chinese companies and how they have impeded the momentum of China's quest for a deserving piece of the international M&A market.

  1. Unlike India and Japan whose mercantile class survived the vicissitudes of the last century, China abolished its market and implemented a pure planned economy for 30 years prior to its opening in 1979. The cessation of market activities gave rise to the disappearance of a few generations of business elites. Even though the Chinese have caught up faster than many had predicted, it may take another one or two decades to generate the sophisticated corporate governance and the veteran professionals to match the institutional prowess of the Japanese and the individual ingenuity of the Indians. At present, few of the institutions and their executives have the requisite experience to execute cross border deals with ease and confidence.
  2. The US has begun to smart over its two decades' support of China's economic growth. An economically prosperous China has not embraced the universal values as predicted and the country seems determined to remain a political outlier. While the US and its allies cannot disentangle themselves economically from China, they are instinctively inclined to create subtle and blatant roadblocks restricting the Chinese from buying strategic assets. The fact that Chinese companies are opaque in their investment motives and decision making process and that they receive unbridled credit support from China's state banks exacerbates the skepticism of both their Western competitors and the host countries. Nationalist politicians, journalists and competing corporates all find it extremely easy to denigrate, lampoon and second guess the Chinese. Other than local politicians, Wall Street bankers and other service providers, Chinese companies have few cheerleaders on their side.
  3. Most Chinese companies are run vertically with the CEO being the final arbiter for investment decisions. Most of these CEOs however do not have a mature understanding of what is expected of them in an M&A transaction. They habitually abstain from active participation in the process which will lead to an investment decision. Neither do they wish to delegate and devolve their authority to negotiating teams whose lack of authority is often maddeningly frustrating to everybody else involved. In the fast moving deal market, you will see many hapless Chinese executives with little or no authority to improvise any ideas or to make any decisions without headquarter approval.
  4. Many consider the Chinese SOEs as extensions of the Chinese government and sometimes rightfully so. As proxies of the state, the SOEs are seen less a profit seeking enterprises than entities mandated the task to buy resources around the world for the benefit of the country. After having been denied to buy equity of the name brand Western companies (e.g., Unical and Rio Tinto), Chinese companies have developed a jaundiced view about the fairness of the market as manipulated by the Anglo American business community and sometimes equally rightfully so. Their alternative is to invest directly at the assets level which in turn arouses suspicion that China fundamentally distrusts the market and wishes to create alternative supply channels of energy and metal ores which may challenge the existing dynamics. The strategy will not play out well for China. China has no colonial experience and its diplomatic playbook is still stuck in its non alignment past. The odds are poor that they will beat the Shells and Anglo Americans of the world in reaping decent returns in third world countries. In addition, China cannot change the geography and they will have to ship the iron ores or crude oil to China via sea lanes currently patrolled exclusively by the US navy and its allies. China should revisit the feasibility of joining force with the leading Western companies for mining and energy transactions and the West should also refrain from encouraging China to pursue wildcat tactics by denying them again and again the access to equity interests in their leading resources companies.
  5. Chinese companies drew the preponderance of their international experience from the days in the 80's throughout the 1990's and earlier 2000's when many of them negotiated with numerous MNCs for setting up joint ventures and other foreign investment enterprises in China. The Joint Venture Law of China created a modus vivendi whereby Chinese and foreign parties are forced to adopt a quasi-partnership template for their joint operation. In spite of its many ills, this legal regime has done a decent job in protecting or even favouring foreign investment projects. The governments at local level have become particularly beholden to those employment creating and tax paying MNC mega plants. This comfortable matrix sadly never exists elsewhere and the Chinese businessmen are often befuddled by the absence of any substantive protection of their investment in mature jurisdictions where the governments are powerless in interfering in the legal or other administrative process. The Chinese accustomed to the concept of paternalists protection will find rude awakening in both negotiation and operation stages of their overseas projects.
  6. The private companies seem to have a much better understanding of the synergy which their overseas acquisitions are likely to engender in their home market. But they are woefully outcompeted by both SOEs and MNCs in recruiting the top talent to execute their overseas deals. In addition, many founders of the business are still in their most robust deal making years and it is difficult for them to institutionalize and decentralize their empire to fit with the international business ethos. While the Chinese government in fact has given them more support to the private companies operating overseas than it is given credit for, it is still infeasible for the Chinese government, given its remnant ideological misgivings about China's home grown private sector, to support the replication of a Samsung or a LG under the Korean model.

These six constraints are by no means exhaustive. But each informs a unique disadvantage only applicable to the Chinese companies.

China's arrival in the landscape of international cross border transactions has been much sooner than anticipated and China once again has reinvented itself and defied the prediction of the pundits that its meaningful participation of global M&A could not have preceded the removal of the duel hurdle of the non-convertibility of RMB and of its closed capital account. While the Chinese companies are on track to become a dominant global M&A players, they still have much distance to cover and many obstacles are beyond their own endeavour to overcome. Only efforts by the Chinese Government to further liberalize its economic governance can facilitate greater progress. The Chinese are however resilient businessmen and the conditions of an extremely populous but resource deprived country dictate that their companies succeed in the realm of global cross border transactions. Hence, they have no choice but to overcome all hardships in this process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions