Most Read Contributor in South Africa, September 2016
At the opening ceremony of the Forum on China-Africa Cooperation
("FOCAC") summit held in Johannesburg in
December 2015, the President of the People's Republic of China,
Xi Jinping, announced that China intends to invest US$60-billion in
Africa over the next three years. This undoubtedly reaffirms the
commitment by China and Africa to bilateral cooperation, thereby
furthering China's "
One Belt, One Road" foreign policy. However, before
celebrating prematurely, it is important to consider how Africa and
China can mutually benefit through bilateral cooperation, while
being cognisant that a win-win outcome will not be achieved
When China became the world's second largest economy,
ambitious Chinese companies pledged to expand their target markets
abroad by extending China's businesses and technology and to
work with other countries to help change the world for the better.
To this end, China chose Africa as its testing ground and, as such,
an increasing number of merger and acquisition transactions
involving Chinese companies is taking place in Africa.
However, this expansion into Africa has not been easy for
Chinese companies, which still face a number of challenges. These
include differences in language, culture, belief systems, social
psychology and organisational structures. In addition, cooperation
with Chinese companies in Africa may be influenced by politics,
sometimes at the expense of certain economic interests and with a
resultant disregard for the importance of the law.
African companies are often very stringent when it comes to
legal compliance (particularly in respect of joint ventures).
Chinese companies, by contrast, may have limited knowledge of local
laws and/or lack of experience when it comes to transacting abroad.
This can become problematic in merger and acquisition transactions,
in which it is often the company's top decision-makers that act
as the transaction leaders and who may limit their focus to
the key commercial issues of the partnership arrangement, without
giving much consideration to potential disputes or conflicts that
may arise. This approach often results in a breakdown of the
relationship between the two parties, who then have to resolve the
dispute by means of litigation. This can incur severe losses, which
could have been avoided with the right consultation.
Some Chinese companies have also learned the hard way that
blindly making use of existing contract templates in multiple
African jurisdictions without considering local laws or making
amendments to cater for the specific circumstances may save costs
on advisors in the short term, but not in the long term.
Chinese (and foreign) companies doing business with African
companies should pay particular attention to the legal differences
in various African jurisdictions to ensure that they understand
local laws (as well as international law) in greater detail. In
this regard, legal talent with international experience should be
hired and transparency should be prioritised when settling
Unfortunately, some Chinese companies expanding abroad have
learned their lesson the hard way, often having to suffer great
financial loss in order to overcome obstacles. In the era of
globalisation, business can no longer be conducted while ignoring
the importance and impact of local law. Also, it should not be
assumed that because Africa is developing, its legal systems are
not as sophisticated as those in developed nations. It can be
argued that the laws of various parts of Africa are more stringent,
technical and practical compared to the laws of China. Most
African companies have a profound knowledge of the law and highly
value and respect it. Therefore, it is recommended that Chinese
companies involved in merger and acquisition transactions and/or
partnership arrangements with African companies should pay
particular attention to agreement details and scrutinise each
aspect from a legal perspective. By doing so, a fair and mutually
beneficial result can be achieved for both parties.
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.
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