China’s Healthcare Deal Landscape

• Overall M&A activity – China’s total M&A transaction volume increased by 24% in 2024 compared to 2023.
• Cross-border appeal – 60% of Chinese biotech deals included ex-China or global rights, indicating strong international interests.
• Innovation pipeline – Chinese biotech represents approximately 23% of global drug candidates in development.

Global Context

• Contrasting trends – While global healthcare M&A volumes and values declined by 20% and 29% respectively in 2024 compared to 2023, Chinese healthcare assets remained attractive targets.

Underlying Drivers of the China Biotech M&A Boom

The looming 2030 patent cliff

• USD200+ billion at risk – Major global pharma companies face patent expirations on blockbuster products between 2025 and 2030.
• Pipeline urgency – Acquirers like AstraZeneca (Farxiga), Merck (Keytruda) and GSK (Trelegy) are racing to fill revenue gaps.
• Strategic pivot – M&A targets in China offer ready-made solutions with candidates already in mid-to-late clinical development.

China’s maturing innovation ecosystem

• Talent repatriation – Over 7,000 Western-trained scientists returned to China in the past decade, bringing expertise and global networks.
• Therapeutic focus – Chinese innovators have strategically targeted areas with high unmet need and commercial potential.
• Strategic targeting – Chinese biotechs have focused on anticipating Western pharma needs, particularly in post-patent cliff scenarios.

Time and cost efficiency advantages

• Clinical trial speed – Chinese CROs complete clinical trials more efficiently in terms of cost and time than US/EU counterparts.
• Patient recruitment – Access to large, treatment-naïve patient populations enables rapid enrolment.
• Cost structure –
1. lower R&D costs for comparable quality work; and
2. lower Preclinical to Phase I costs.
• Financial efficiency – Acquirers can effectively “double their R&D dollars” through Chinese asset acquisitions.

Regulatory environment improvements

• NMPA reforms – China’s regulatory agency has expedited review timelines and aligned more closely with FDA/EMA standards.
• Data acceptance – Increased reciprocal acceptance of Chinese clinical data by Western regulators.
• Dual-filing strategies – Many Chinese biotechs designed global-standard trials allowing simultaneous FDA/EMA/NMPA submissions.
• Global development integration – Many Chinese biotechs designed development programmes with global approval pathways from inception.

Multinationals Divesting Their Mature Product Portfolios in China

Notably, a contrasting trend has emerged where multinational pharmaceutical companies are strategically divesting their mature product portfolios in China. This is clearly demonstrated by (i) the recent USD680 million acquisition of UCB’s established CNS franchise by CBC Group and Mubadala Investment Company and (ii) the acquisition of Roche’s commercial rights in China mainland for Rocephin® by Hasten.

These transactions reflect a broader industry shift where multinationals are streamlining their China operations, focusing on innovative medicines while transferring mature products to investors who can better optimise these assets in the local market.

Trajectory in 2024

• Valuation polarisation – While median multiples decreased, premium assets commanded significantly higher valuations reflecting strategic value.
• Asset type evolution – Shift from early-stage platform technologies towards clinical-stage assets with near-term commercialisation potential.
• Acquirer diversification – While US pharma remains dominant (Merck’s acquisitions of LaNova and Curon), European (AstraZeneca, GSK, Genmab) are increasingly active.

2025 Outlook

• Expected volume – Projected 30–40% increase in China biotech M&A transactions as patent cliff pressure intensifies.
• Valuation stratification – Continued premium valuations for clinical-stage assets directly addressing patent cliff challenges.
• Counter-cyclical movement – China biotech M&A likely to outperform global trends as efficiency advantages become more critical in resource-constrained environment.
• Buying and leaving – Multinational pharma companies’ strategic shift to focus on innovative medicines while optimising their China presence through partnerships or selective divestments.

Common Incorporation Structures

Most Chinese start-ups either incorporate domestically or adopt an offshore “red-chip” structure consisting of a Cayman Islands holding company, Hong Kong intermediate company, and wholly foreign-owned enterprise (WFOE) in mainland China.

Preferred Jurisdictions for Holding Companies

The Cayman Islands is most common for VC-backed start-ups due to its familiarity with international investors, flexible corporate governance, tax advantages, and easier path to overseas IPO. Hong Kong serves as a popular intermediate holding location, offering geographic proximity, strong legal system, gateway to mainland China, and tax treaty benefits.

Incorporation Timeline

Establishing a mainland WFOE typically takes one month, while Cayman/BVI and Hong Kong incorporations can be completed in one week.

Capital requirements

Domestic companies have no statutory minimum capital requirement since 2014, though capital should be “sufficient for business scope”. The practical minimum varies by industry/location and can be contributed over five years. Domestic companies have similar flexibility, though industry-specific requirements may apply and local authorities may have guidelines.

Common Practice

Most VC-backed start-ups opt for an offshore structure, with biotech companies particularly favouring the Cayman/HK/PRC structure. Companies with pure domestic focus may choose direct PRC incorporation. The choice of structure is typically determined by future funding plans, exit strategy, operational needs and investor preferences.

In China, entrepreneurs are typically advised to choose a Limited Liability Company (LLC) as the preferred type of entity for initial incorporation. This is the most common and practical structure for start-ups and small to medium-sized enterprises (SMEs) due to its flexibility, limited liability protection and relatively straightforward set-up process.

In China, the VICT (Venture Capital + IP + CRO + Talent) model is a widely adopted and very successful innovative approach to incubation (including those from zero to IPO companies such as Innovent, CStone, Hua Medicine, Ocumension, Cutia, Everest, etc), combining four key elements.

• Venture capital provides funding and strategic support, specialises in life sciences/biotech investments and enables start-ups to focus on R&D without immediate revenue pressure. A set of typical Series A/Seed documents will be adopted, including Share Purchase Agreement, Shareholders Agreement, and Articles of Association.
• Intellectual property forms the innovation foundation by sourcing valuable IP from universities, research institutions and global companies, reducing risks through proven/promising IP acquisition, which will be documented by a licensing-in or collaboration agreement.
• Contract research organisation handles outsourced R&D services, manages preclinical/clinical research and regulatory compliance, while reducing costs and accelerating development.
• Management team (including CEO) will be incentivised through stock options or restricted shares governed by employee stock ownership plan (ESOP) and share restriction agreements.

Key Benefits

The model creates a streamlined development pathway, reduces financial and operational risks, enables faster time-to-market and enhances collaboration between stakeholders.

China’s Advantages

Strong government support for biotech, world-class CROs (WuXi AppTec, Tigermed), access to global IP resources, and cost-effective R&D and manufacturing combine to accelerate biotech innovation in a co-ordinated ecosystem.

Venture capital in China is readily available through domestic VCs, government funds, corporate investors and foreign firms. While domestic funding is accessible, government support typically aligns with national priorities. Foreign VCs remain active despite regulatory constraints and geopolitical challenges in strategic sectors such as CGT and AI technologies. Start-ups offering innovative solutions in priority industries are best positioned to secure funding.

Unlike the standardised National Venture Capital Association (NVCA) framework, Chinese venture capital relies on proprietary law firm templates. While maintaining consistent structural approaches across funds, these templates allow significant customisation for specific transactions. The ecosystem facilitates template sharing and adaptation while reflecting evolving market practices.

In China’s healthcare and biotech sector, start-ups typically undergo a strategic corporate restructuring as they advance, moving from a simple domestic entity to an offshore holding structure, usually before a late-stage financing, determination of IPO venue or an asset/share sale. This transformation is driven by several compelling factors that significantly impact the company’s growth trajectory and financing capabilities.

Structural Evolution

Most companies adopt a “red-chip” structure, maintaining their Chinese operating entity while establishing an offshore holding company (typically in the Cayman Islands). This restructuring is primarily motivated by the need to access foreign investment and capital markets. Foreign venture capital firms strongly prefer this structure as it provides:

• a familiar legal framework;
• standardised investment terms and clear shareholder rights;
• established mechanisms for both entry and exit;
• greater flexibility in share classes and voting rights;
• enhanced minority shareholder protection;
• more accommodating listing rules for pre-revenue healthcare and biotech companies;
• more efficient tax planning for potential M&A activities;
• optimised structure for asset sales;
• better treatment for IP transfers; and
• flexibility for attracting and retaining global talents.

This evolution in corporate structure has become standard practice for Chinese biotech companies with global ambitions, reflecting the industry’s increasingly international nature and the importance of accessing global capital markets and partnerships.

Market Evolution and Current Preferences

Prior to 2022, Chinese biotech investors strongly favoured IPOs, particularly on the Hong Kong Stock Exchange (HKEX) via Chapter 18A for pre-revenue biotech firms, or NASDAQ. This preference was driven by historically high valuations for innovative drug developers like BeiGene and Zai Lab, strong retail investor appetite in Hong Kong, and the prestige associated with public listings.

However, the landscape has shifted significantly since 2023. Recent market conditions have increased M&A activity, primarily due to mounting IPO challenges including stricter China Securities Regulatory Commission (CSRC) scrutiny on overseas listings, depressed valuations in Hong Kong (with many 18A-listed firms trading below IPO price), and US delisting risks under the Holding Foreign Companies Accountable Act (HFCAA). Simultaneously, strategic buyer demand has increased, with global pharma giants like Pfizer and AstraZeneca seeking to replenish pipelines, and domestic pharmaceutical leaders such as Jiangsu Hengrui and CSPC Pharma expanding innovative portfolios.

The Rise of Dual-Track Processes

Most sophisticated investors now insist on dual-track preparation, pursuing both IPO and M&A readiness simultaneously. This approach is driven by regulatory uncertainty, including unpredictable timelines for China CSRC filing and evolving US–China audit co-operation requirements. Market volatility, evidenced by biotech indices dropping approximately 40% from 2021 peaks, and abruptly changing IPO windows based on geopolitical developments, further supports this strategy. The dual-track approach also maintains leverage in M&A negotiations while accommodating varying LP timelines between venture funds and crossover investors.

While dual-track preparation remains standard practice, the current environment increasingly favours strategic sales for early and mid-stage biotechs. IPOs remain viable primarily for companies with late-phase clinical assets, clear regulatory pathways in both China and Western markets, and strong government or strategic investor backing. This shift toward viewing M&A as the default exit strategy reflects both global biotech market trends and China-specific regulatory complexities.

Most Chinese healthcare and life sciences companies today are more likely to pursue either a domestic listing or a Hong Kong listing, rather than a US or other foreign exchange listing.

Domestic Listing Advantages

Chinese exchanges (Shanghai, Shenzhen, and particularly the STAR Market) have become increasingly attractive due to strong government support, better understanding of the local market and reduced geopolitical risks. The domestic market offers robust valuations for healthcare companies, especially given China’s ageing population and growing healthcare needs. The STAR Market specifically caters to innovative pre-revenue biotech companies with more flexible listing requirements and strong government backing for the healthcare sector as a strategic industry.

Hong Kong as a Preferred “Foreign” Option

Hong Kong has emerged as an ideal middle ground, functioning as both a “foreign” exchange and a familiar market for Chinese companies. It offers the prestige of an international listing while maintaining close ties to mainland China. The HKEX has adapted its rules to accommodate pre-revenue biotech companies and provides access to both international and Chinese investors through mechanisms like Stock Connect.

Declining US Listing Trend

Traditional US listings (NYSE/NASDAQ) have become less appealing due to increased regulatory scrutiny, including the Foreign Companies Accountable Act, and ongoing geopolitical tensions. While these exchanges still offer access to sophisticated healthcare investors and potentially higher valuations, the regulatory hurdles often outweigh the benefits for many Chinese companies.

Dual Listing Considerations

Some larger, well-established companies might still pursue dual listings (typically Hong Kong plus domestic) to maximise their capital access and market presence. This approach allows them to tap both domestic and international investors while maintaining strong ties to their home market. However, this is more common for companies with significant international operations or global expansion plans.

This trend is likely to continue unless there are significant changes in international relations or regulatory frameworks that make foreign listings more attractive again.

Impact on Foreign Listing Choice

A foreign listing can significantly complicate future sale scenarios, especially regarding minority shareholder squeeze-outs. The feasibility and complexity vary notably depending on the chosen exchange and jurisdiction.

Exchange-Specific Considerations

Hong Kong (HKEX) generally presents fewer challenges for Chinese companies due to its established squeeze-out mechanisms under the Takeovers Code. With a 90% threshold for compulsory acquisition and regulatory framework aligned with mainland practices, HKEX offers a more straightforward path for future transactions. This alignment makes it a preferred “foreign” listing venue for companies considering potential future sales.

US Markets (NYSE/NASDAQ) present more significant challenges due to the absence of direct squeeze-out mechanisms in exchange rules. Companies must rely on state-level corporate laws and complex merger procedures, making future take-private transactions more challenging and potentially more expensive. The process becomes particularly complex for Chinese companies due to differences in legal systems and regulatory requirements.

China-Specific Complexities

The situation becomes more intricate for Chinese companies due to several factors. The common use of “red-chip” structures in foreign listings adds a layer of complexity, requiring separate negotiations for onshore and offshore shareholders. Additionally, cross-border acquisitions need multiple regulatory approvals from Chinese authorities, making the process more time-consuming and complex than purely domestic transactions.

Sale Process for VC-Backed Healthcare/Biotech Companies in China

The sale of a privately held, venture capital-financed healthcare or biotech company in China typically proceeds through bilateral negotiations with a selected buyer rather than an auction process. This preference stems from several key factors.

IP protection and confidentiality

Bilateral negotiations limit exposure of proprietary technology, clinical data and IP to a select potential buyer, addressing significant confidentiality concerns in innovation-driven sectors.

Strategic investor alignment

VC backers typically seek buyers who offer not just financial returns but also strategic benefits like market access, complementary technology or regulatory relationships – considerations better addressed through focused negotiations.

Financial adviser expertise

Investment banks and financial advisers like Centerview (that advised on Proteologix, Curon and Chimagen deals) provide critical value through:

• identifying and approaching optimal strategic buyers;
• conducting sophisticated valuation analyses specific to biotech/healthcare assets;
• structuring complex deals including milestone payments and earn-outs;
• creating competitive tension while maintaining confidentiality; and
• managing cross-border considerations for international transactions.

Cultural context

Business in China emphasises trusted relationships and consensus-building, which bilateral negotiations accommodate better than competitive auction processes.

While limited “controlled auctions” among a small group of vetted buyers occasionally occur, fully competitive auctions remain less common due to these sector-specific considerations. The sophisticated guidance of experienced financial advisers is instrumental in orchestrating successful bilateral exits that satisfy both regulatory requirements and stakeholder objectives.

In China’s healthcare and biotech industry, asset deals and exclusive licensing agreements have emerged as the preferred transaction structures for VC-backed companies, outpacing traditional share deals. This preference stems from industry-specific considerations.

Asset Deals: The Preferred Approach

Asset deals dominate the Chinese healthcare M&A landscape because they offer significant advantages to both buyers and sellers.

• Targeted risk management – Buyers can precisely select which assets to purchase without inheriting company-wide liabilities related to tax, employment or compliance issues. This surgical approach is particularly valuable in biotech, where a company’s value often concentrates in specific R&D pipelines or technology platforms rather than the entire enterprise.
• VC-friendly exit mechanics – For venture capital investors, asset deals provide attractive liquidity options. They can monetise successful projects through dividends distribution while potentially maintaining ownership of the corporate shell and other promising but less developed assets.

Exclusive Licensing: Strategic Alternative

Exclusive licensing agreements represent another prominent transaction structure, offering distinct benefits.

• Risk-aligned economics – These arrangements typically feature lower upfront payments supplemented by milestone-based compensation and royalties. This structure aligns payment timing with development success, reducing buyer risk while preserving seller upside through ongoing revenue streams.
• IP ownership retention – The original company maintains intellectual property ownership while monetising market rights. For companies with globally relevant innovations, regional licensing deals can optimise value across different markets.
• Cross-border facilitation – Licensing helps Chinese biotechs lacking global commercialisation capabilities partner with multinational corporations that can navigate foreign regulatory pathways and market access. These arrangements typically face fewer regulatory hurdles than full-company acquisitions.

Limited Appeal of Share Deals

Traditional share deals have become less common due to several significant drawbacks.

• Integration complexity – Buyers in share transactions inherit all operational aspects of the target company, including regulatory compliance requirements, employment obligations and existing business relationships, which create substantial post-closing integration challenges.
• Valuation uncertainty – Healthcare companies, particularly pre-revenue biotechs, often have speculative valuations heavily dependent on pipeline success. Both buyers and sellers frequently prefer transaction structures that isolate and appropriately value specific assets rather than requiring agreement on total enterprise value.
• Regulatory burden – Share transfers trigger comprehensive regulatory reviews and approvals across multiple domains, extending transaction timelines and increasing costs compared to asset deals or licensing arrangements.

In the Chinese healthcare and biotech sector, cash transactions overwhelmingly dominate as the preferred acquisition currency, particularly for privately-held, VC-backed companies. Stock-for-stock exchanges and hybrid approaches remain less common alternatives deployed only in specific circumstances.

Cash Transactions: The Standard Approach

Cash deals represent the vast majority of healthcare M&A transactions in China due to several compelling advantages.

• Immediate liquidity – Cash provides clean, definitive exits for venture capital and private equity investors, eliminating valuation ambiguity and market risk associated with receiving shares in the acquiring company. This certainty is particularly valuable in the healthcare sector, where asset values can be highly speculative.
• Structural simplicity – Cash acquisitions simplify deal mechanics, avoiding the complex shareholder arrangements and governance considerations associated with stock-based transactions. This streamlined approach accelerates closing timelines and reduces transaction friction.
• Regulatory preference – Chinese regulatory authorities typically process cash-based acquisitions more efficiently than stock-based alternatives, especially for transactions involving foreign acquirers or publicly traded entities. This regulatory pragmatism encourages cash as the default consideration structure.
• Capital availability – Many strategic buyers in China’s healthcare sector (including large domestic pharmaceutical companies, state-owned enterprises and private equity-backed platforms) maintain substantial cash reserves specifically earmarked for acquisitions, reducing the need for stock-based alternatives.

Alternative Structures: Limited Applications

While less common, alternative transaction currencies appear in specific scenarios.

• Stock-for-stock exchanges occasionally emerge when:
1. the acquisition represents a genuine merger of equals rather than a straightforward takeover;
2. both companies are publicly traded with liquid share values;
3. target company founders or long-term shareholders seek continued participation in the combined entity’s future growth; and
4. cross-border transactions involve established companies with internationally recognised equity value.
• Mixed consideration (combining cash and stock) serves specialised purposes:
1. bridging valuation gaps between buyer and seller expectations;
2. retaining key management through equity incentives while providing partial liquidity; and
3. balancing immediate returns with potential future upside, particularly for breakthrough technologies with uncertain commercial timelines.

Seller Responsibility for Representations and Warranties

Founder and management obligations

• Founders must provide extensive representations covering all operational aspects of the business.
• Healthcare-specific areas include regulatory compliance, product safety, clinical data integrity, and IP rights.
• Management teams stand behind quality control systems, manufacturing processes and employee qualifications.
• These extensive warranties reflect the heavily regulated nature of China’s healthcare sector.

VC investor position

• Financial investors typically secure limited liability positions based on passive investment role.
• Representations generally restricted to “fundamental” matters (share ownership, selling authority).
• Liability often capped at a percentage of their proceeds rather than full transaction value.
• Negotiate “several, not joint” provisions to avoid covering other sellers’ obligations.

Post-Closing Protection Structures

Indemnification framework

• Sellers must compensate buyers for representation and warranty breaches and undisclosed liabilities.
• Healthcare-specific indemnities focus on regulatory compliance, product liability, and IP validity.
• Survival periods for healthcare representations typically extend beyond standard business warranties.
• Special provisions often address changing regulatory interpretations or enforcement practices.

Escrow and holdback mechanisms

• Escrows typically range from 5% to 20% of transaction value in Chinese healthcare deals.
• Standard holding periods of 12–24 months post-closing.
• Higher percentages common for early-stage companies or those with significant compliance exposure.
• Staggered release structures sometimes used for different categories of potential claims.

Representations and warranties insurance

• RWI remains relatively uncommon in Chinese healthcare deals despite Western prevalence.
• Policies typically contain substantial exclusions for key healthcare regulatory risks.
• Limited insurer experience with Chinese healthcare compliance frameworks.

Spin-offs are increasingly customary in China’s healthcare industry, particularly in the pharmaceutical sector. Various spin-off structures and cases have been observed.

Geographic Operation Spin-Off

Model overview

The geographic operation spin-off model involves separating a company’s business operations or assets into distinct geographic or functional scopes to optimise value (typically, China and ex-China operations and assets). This model is often used to focus on specific capital markets.

Investor and market considerations

• US vs PRC capital markets – This model underscores the differences in capital market dynamics between the US and PRC. The US market is noted for its emphasis on innovation and higher valuations for biotech companies.
• China-based investors – On the other hand, Chinese investors are more interested in late-clinical-stage and the close-to-commercialisation products, which are China A-share listing preference.

Pipeline Spin-Off

Model overview

The pipeline spin-off model involves separating specific therapeutic pipelines or drug candidates into a new company. This allows the parent company to focus on its core business while unlocking value for the spun-off pipeline.

Underlying reasons

• Operational efficiency – The spin-off simplifies the company’s structure, allowing for better resource allocation and management.
• Specialised investors – The separation of the certain business and pipelines may attract investors with a specific interest in that area, while the remaining business appeals to investors focused on the other pipelines.

Pipeline Out-Licensing and Financing via “NewCo” Model

Model overview

The NewCo model has become very popular and involves creating a new company (NewCo) to license specific pipelines or assets from the parent company. This model is often used to attract specialised investors and provide dedicated financing for the licensed pipeline.

Financial considerations

The transaction involves cash payments to the parent company in exchange for the licensing rights. The venture capital investment funds the NewCo’s global operations, including R&D, clinical trials and commercialisation outside China.

Strategic benefits

• Access to capital – The parent company secures funding for its international pipeline without diluting its core business. The model attracts specialised financial investors, who bring strategic expertise and global connections.
• Risk mitigation – By separating international operations into the NewCo, the parent company isolates the risks and challenges of global markets from its core Chinese business.
• Strategic flexibility – The NewCo structure allows the parent company to focus on its domestic operations while leveraging the international venture capital’s resources for global expansion. The parent company retains the option to benefit from the NewCo’s success through its minority stake and potential royalties.

Valuation enhancement

The NewCo model can increase the valuation of the parent company’s pipeline by attracting international investors and demonstrating a clear path to global commercialisation.

Spin-offs in China can be structured as tax-free (or more precisely, tax-deferred) transactions at both the corporate and shareholder levels under certain conditions. In China, these are typically referred to as transactions that qualify for “Special Tax Treatment” (STT).

Key Requirements for Tax-Free Spin-Offs in China

China’s regulations on tax-free reorganisations, primarily governed by Circular 59 and related implementation measures, establish several critical requirements.

Reasonable business purpose

• The spin-off must have legitimate business rationale and not be primarily motivated by tax avoidance.
• The transaction must serve business needs such as operational restructuring, strategic realignment or business expansion.

Continuity of business enterprise

• The spun-off entity must continue operating the same business activities for a specified period after the reorganisation.
• There are typically requirements regarding the continuity of business operations.

Equity consideration requirement

• At least 85% of the total consideration must be in the form of equity.
• Cash and other non-equity consideration should not exceed 15% of the total transaction value.

Ownership continuity

• The transaction must maintain substantial continuity of ownership.
• Original shareholders must retain a significant portion of their ownership interests in the post-reorganisation entities.

Post-reorganisation restrictions

• There is a 12-month restriction period during which the equity received cannot be transferred.
• The acquiring entity cannot change the original business activities of the acquired business for a certain period.

Please note that the aforementioned tax rules specifically apply to a narrowly defined “spin-off” transaction within China. However, in the case of cross-border spin-off transactions, the situation becomes substantially more intricate, necessitating elaborate tax planning to navigate the complexities of multiple jurisdictions.

Although it is not common practice, a spin-off followed by a business combination can be structured within China, provided all legal and regulatory requirements are met.

Key Requirements

• Shareholder and regulatory approvals – Obtain necessary approvals from the company’s shareholders and relevant regulatory bodies, including the China Securities Regulatory Commission (CSRC) if the company is publicly listed.
• Compliance with company law – Adhere to the PRC Company Law, ensuring proper documentation and procedural compliance for both the spin-off and subsequent combination.
• Tax considerations – Ensure the spin-off qualifies for tax-deferred treatment by meeting conditions such as business continuity, equity consideration, and post-transaction operational restrictions.
• Operational continuity – Maintain uninterrupted business operations to preserve the value of both the spun-off entity and the combining entities.

A spin-off transaction in China typically takes 6–12 months from initial planning to completion, though this timeline can vary significantly based on several factors.

• Corporate approvals (1–3 months) –
1. obtaining board and shareholder approvals;
2. preparing transaction documents; and
3. due diligence processes.
• Regulatory approvals (2–4 months) –
1. for publicly listed companies, CSRC (China Securities Regulatory Commission) approval is required;
2. MOFCOM approval, if needed, typically takes about 30 days once proper documentation is submitted; and
3. antitrust clearance may be required if the transaction meets certain thresholds.
• Tax clearance process (2–4 months).

Prior to launching a full offer, strategic stake-building in Chinese listed companies is common but governed by strict regulatory requirements.

• 5% disclosure – Acquiring 5%+ requires public disclosure within three trading days, including intentions.
• 30% threshold – Crossing 30% ownership triggers mandatory offer requirement unless exempted.
• Standstill period – Declining to make a full offer typically results in 12-month acquisition restrictions.

China has a mandatory offer threshold set at 30% of the voting shares of a publicly listed company.

Though legally available, mergers are rarely used due to regulatory complexity and shareholder protections. Acquirers instead prefer equity acquisitions, tender offers and block trades for their efficiency, speed and simpler transaction structure.

Payment Methods

Cash

Cash is predominant in technology acquisitions, for simplicity and liquidity.

Stock-for-stock

Stock-for-stock is less common and is mainly used in strategic deals between listed entities or SOE consolidations.

Pricing Requirements

The offer price cannot be lower than the highest price paid by the acquirer in the previous six months.

Technology Sector Preference

Uncertain valuations drive preference for simple cash structures over complex contingent arrangements.

Chinese takeover offers permit limited conditions to protect market stability and minority shareholders:

• regulatory approvals;
• minimum acceptance thresholds; and
• narrow MAC clauses.

Financing and subjective conditions are prohibited. Offers require “certain funds” and completed due diligence. CSRC oversees all conditions, ensuring objectivity and public interest alignment. China’s regime is stricter than Western markets.

Negotiated takeovers in China typically use transaction agreements. Beyond board recommendations, targets may agree to non-solicitation, business covenants, regulatory support, and basic representations about corporate authority and compliance. Extensive representations and warranties are uncommon, as public disclosures and completed due diligence carry greater weight.

In China, the typical minimum acceptance conditions for tender offers are aligned with key control thresholds:

• 30% – initial mandatory takeover threshold (regulatory requirement);
• 50% – ensures majority shareholder control;
• 67% – allows control of supermajority decisions; and
• 100% – used for privatisation or delisting purposes.

These thresholds reflect the acquirer’s strategic goals, regulatory compliance and the need to secure effective control of the target company.

Required ownership thresholds to buy out shareholders that have not tendered are as follows.

• 75% ownership – Key threshold to delist the company from the stock market.
• 100% ownership – There is no statutory “squeeze-out” procedure, so remaining shares must be acquired through negotiation or post-offer market trades.

Acquirers generally must rely on delisting mechanisms, negotiated solutions and open-market purchases to consolidate ownership after a successful tender offer, as minority shareholders are well-protected under Chinese law.

Takeover offers require certain funds (bank certification or executed financing documents) before launch. The bidder makes the offer with bank support guaranteeing funds. Offers cannot be conditional on financing – bidders must demonstrate financial certainty upfront. Private business combinations may permit limited financing conditions if secured early.

Targets can grant break-up fees, matching rights, non-solicitation provisions and force-the-vote provisions. These protections face regulatory scrutiny ensuring they remain reasonable, transparent, and preserve board fiduciary duties and shareholder rights. Common in negotiated deals, these measures must balance acquirer certainty with target shareholder fairness.

In China, bidders that cannot reach 100% ownership can still achieve significant governance rights, primarily through the following.

• Majority control (≥50%), granting control over ordinary corporate decisions.
• Supermajority control (≥67%), enabling approval of special resolutions.
• Voting agreements or shareholder alliances to consolidate practical control.
• Board control, strategic shareholder agreements, and influence on dividends and operations.

However, minority shareholders retain strong legal protections, and there are no formal arrangements like Germany’s domination and profit-sharing agreements. Instead, bidders must work within Chinese corporate governance frameworks and shareholder agreements to maximise their control.

Irrevocable commitments from principal shareholders to tender shares or support transactions are common in Chinese friendly takeovers. These provide deal certainty and streamline acquisitions. Commitment terms and enforceability are regulated to balance principal shareholder interests with those of minority shareholders and the public market.

The following frameworks apply throughout the process.

• Regulatory and stock exchange approval prior to launch –
1. Both the CSRC and relevant stock exchange must review the offer documents before the launch.
2. The review typically takes 30–60 days.
• Offer price and terms –
1. The offer price must meet regulatory requirements (eg, no lower than the highest price paid in the last six months).
2. Terms must be fair, fully disclosed and protective of minority shareholders.
• Timeline setting –
1. The CSRC establishes the offer timeline, usually 30–60 days, while competing offers or revisions can extend this timeline.
• Competing offers –
1. A competing offer extends the acceptance period by at least 10 days, with further extensions possible for shareholder decision clarity or revised terms.

By maintaining regulatory consistency, these frameworks work to protect minority shareholders, ensure market stability, and preserve transparency throughout the tender process.

Tender offer periods may extend if regulatory or antitrust approvals remain pending, with proper disclosure and justification required. While announcements commonly precede full clearances, actual offer launches typically await approval completion. This sequence ensures legal compliance while protecting shareholder and market interests.

Industry-Specific Regulatory Licences/Permits

Healthcare-focused companies must obtain sector-specific licences beyond general corporate registration.

Pharmaceuticals

• Drug Manufacture Licence (for manufacture).
• Drug Operation Licence (for distribution).
• Regulatory authority – National Medical Products Administration (NMPA) and subordinate bodies at provincial/municipal levels (MPAs).
• Approval timeline – 6–12 months, depending on business complexity.

Medical devices

• Medical Device Manufacture Licence (for manufacture).
• Medical Device Operation Registration/Licence (for distribution).
• Regulatory authority – NMPA and MPAs.
• Approval timeline – 3–12 months, depending on product classification (Class I, II, III) and business complexity.

Medical institutions

• Medical Institution Practice Licence required for hospitals, clinics and healthcare service providers.
• Regulatory authority – National Health Commission (NHC) and local counterparts.
• Approval timeline – Generally 3–6 months, depending on business complexity.

Foreign Investment Considerations

Certain healthcare subsectors are subject to foreign investment restrictions under China’s Negative List for Foreign Investment Access.

Regulatory bodies – Ministry of Commerce (MOFCOM) and National Development and Reform Commission (NDRC) – enforce foreign investment regulations.

Given regional variations and evolving regulations, businesses should engage with local authorities early and conduct thorough regulatory due diligence before initiating operations.

The China Securities Regulatory Commission (CSRC) serves as the primary regulator overseeing M&A transactions involving listed companies in China. Stock exchanges also maintain significant oversight responsibilities.

Primary Regulatory Bodies

• China Securities Regulatory Commission (CSRC) – Principal market regulator for public company transactions.
• Stock Exchanges – Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE) and Beijing Stock Exchange (BSE) supervise disclosure and compliance requirements.

Key Regulatory Requirements

Shareholding disclosure

Investors acquiring 5% or more of a listed company’s shares must:

• submit reports to the CSRC and relevant stock exchange;
• notify the target company; and
• make a public announcement.

Major asset restructurings and tender offers

These transactions require:

• filing with the relevant stock exchange; and
• CSRC review of mandatory disclosure documents.

Additional approvals

Depending on transaction structure and sector, the following additional approvals apply.

• State-owned assets – Transactions involving SOEs may require State-owned Assets Supervision and Administration Commission (SASAC) approval.
• Industry-specific – Certain sectors (financial services, healthcare, telecommunications) trigger reviews by sector-specific regulators.

The CSRC and stock exchanges function as the primary market regulators ensuring transparency, compliance and market order in public company M&A transactions, with additional regulatory bodies potentially involved based on industry and deal structure.

China applies a pre-establishment national treatment plus negative list system for foreign investment, administered by the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM).

General Investment Framework

• Standard sectors – Foreign investors can generally own 100% of pharmaceuticals and medical devices businesses unless specifically restricted.
• Prohibited areas – Foreign investment is completely prohibited in specific fields such as human stem cell research and gene therapy technologies (other than in designated Free Trade Zones (Beijing, Shanghai, Guangdong) and Hainan Free Trade Port since September 2024).

Restricted Sectors

Medical institutions face certain ownership restrictions.

• General rule – Foreign investors typically establish equity joint ventures for medical institutions.
• Key exceptions – On 29 November 2024, the National Health Commission (NHC) and three other government departments released a comprehensive work plan allowing wholly foreign-owned hospitals in nine major cities:
1. Beijing, Tianjin, Shanghai, Nanjing, Suzhou;
2. Fuzhou, Guangzhou, Shenzhen; and
3. the entire island of Hainan.

Market Liberalisation

China’s gradual relaxation of restrictions on foreign-invested hospitals has significantly increased investment potential, aligning with broader healthcare reform initiatives.

Foreign Direct Investment Filing Requirements

Standard process

• General filing – Investments outside prohibited/restricted categories require no separate MOFCOM filing; local AMR transmits investment information to MOFCOM automatically.
• No suspensive effect – Filing does not delay closing; transaction proceeds concurrently with filing process.

Special situations

• Restricted sectors – Investments in restricted categories require specific approvals before closing.

National Security Review

China maintains a national security review system for foreign investments that could impact national security. The Measures for Security Review of Foreign Investment, effective 18 January 2021, apply to acquisitions in sensitive sectors where foreign control might affect national security.

Sensitive sectors include:

• military and defence sectors;
• key infrastructure (energy and transportation);
• critical technologies (biotech, vaccines, and IT); and
• other sensitive industries (agriculture, finance, and cultural services).

Foreign investments in pharmaceutical and medical sectors, particularly those involving critical technologies like biotech, may require security review if the investor gains control of the target. The review process is jointly conducted by the NDRC and MOFCOM, involving:

• initial screening; and
• comprehensive review if necessary.

Transactions cannot proceed without clearance. While China does not prohibit foreign investments based on nationality, investors from certain countries may face increased scrutiny.

Export Control Regulations

The Export Control Law (effective December 2020) regulates the export of sensitive items, including biotech and military technologies. M&A deals involving the transfer of controlled technologies or sensitive data (such as genetic or biotech data) require export control approval before closing.

Filing Requirements

Under the PRC Anti-Monopoly Law (amended 2022) and its implementing regulations, concentrations of undertakings meeting notification thresholds must be filed with the State Administration for Market Regulation (SAMR). Transactions cannot close without SAMR approval.

Filing Thresholds

The filing thresholds, updated in early 2024, are primarily based on turnover:

• global turnover threshold – combined worldwide turnover of all parties exceeded CNY12 billion in the previous fiscal year, and at least two parties each had turnover of CNY800 million or more in China; or
• China turnover threshold – combined turnover in China exceeded CNY4 billion, with at least two parties each having turnover of CNY800 million or more in China.

These thresholds frequently apply to pharmaceutical and medical device transactions, where deal sizes often trigger filing requirements.

Review Process and Timeline

The antitrust review process consists of:

• Phase I review; and
• Phase II review (if necessary).

The statutory review period can extend up to 180 days or more, including extensions, during which the transaction cannot close.

Penalties for Non-Compliance

The amended Anti-Monopoly Law introduced stricter penalties for gun-jumping:

• fine of up to CNY5 million for transactions with no anti-competitive effects; or
• fine of 5%–10% of the previous year’s turnover for transactions causing anti-competitive effects.

For healthcare transactions, assessing filing thresholds and making timely SAMR filings is critical. Non-compliance can result in significant delays or financial penalties that may jeopardise deal completion.

Acquirers in China must comply with labour-related laws and regulations when conducting transactions, including the PRC Labour Law (2018), PRC Labour Contract Law (2012), PRC Social Security Law (2018), and Provisions on Democratic Management of Enterprises.

Employee Consultation Framework

Chinese law requires consultation with employees or their unions for significant corporate decisions, though these consultations are generally non-binding. Key considerations include the following.

• Unchanged employer entity – In transactions where only shareholders change but the employer entity remains the same, existing labour contracts continue in effect, with the new entity assuming all obligations.
• Entity changes with workforce impact – For M&As involving redundancies, relocations or staff resettlement:
1. state-owned enterprises (SOEs) must obtain approval from the employee congress for proposed plans; and
2. private and foreign-invested enterprises need only conduct advisory consultations that are not binding on the board.
• Disclosure requirements – No legal obligation exists to publicly disclose employee consultations, but companies must include employee arrangements in transaction documents, particularly for deals involving mass lay-offs or major workforce changes.

China maintains stringent foreign exchange controls governing cross-border payments, including M&A transactions. The State Administration of Foreign Exchange (SAFE) and its local branches oversee these transactions, distinguishing between current account and capital account items.

Regulatory Framework

Pharmaceutical and medical device M&A transactions typically fall under the capital account category. Key regulatory requirements include the following.

• Foreign exchange registration – Following completion of necessary MOFCOM filing, foreign investors must register the transaction with SAFE (usually via a designated bank) and remit purchase funds into China.
• Currency conversion – Upon receipt of foreign currency, Chinese sellers must complete SAFE registration through a bank to convert funds into RMB.
• Approval process – While case-by-case approval from the People’s Bank of China (PBOC) is not typically required for individual transfers, banks review transaction documentation under SAFE’s framework before processing exchange and remittance.

Recent Developments

SAFE has introduced measures to streamline procedures in recent years, including:

• enabling cross-border cash pooling; and
• allowing discretionary conversion of capital funds.

However, for large or complex transactions, banks may still seek guidance from SAFE or the PBOC before processing.

Investment Liberalisation

• Foreign hospital ownership – 2024 Negative List revision allows wholly foreign-owned hospitals in major cities (excluding traditional Chinese medicine and public hospital mergers).
• Biotech opening – September 2024 notice permits foreign enterprises to develop human stem cells and gene therapies in designated Free Trade Zones (Beijing, Shanghai, Guangdong) and Hainan Free Trade Port.

Regulatory Improvements

• Domestic manufacturing – April 2024 NMPA announcement streamlines procedures for transferring overseas drug production to domestic manufacturing.
• Genetic resources – Implementation rules (July 2023) clarify approval procedures for foreign involvement in genetic research.
• Pharmaceutical operations – Updated NMPA regulations on quality control and licensing (effective 2024).

Compliance Developments

• Anti-corruption campaign – 2023 nationwide initiative by 14 regulatory departments led to high-profile investigations.
• Pharmaceutical compliance – January 2025 SAMR Compliance Guidance on Prevention of Commercial Bribery Risks for Pharmaceutical Companies establishes national standards for preventing commercial bribery.

Information Sharing Principles

In M&A transactions, listed companies may provide non-public information to prospective acquirers under confidentiality, while adhering to fair disclosure principles without favouring particular parties. Boards typically require:

• signed strict non-disclosure agreements before sharing due diligence materials; and
• controlled access to financial statements, business data, key contracts, and other unpublished information.

Equal Treatment Requirements

When multiple bidders are involved, companies must:

• offer due diligence access and information simultaneously and equally;
• avoid selective early disclosure of material information to individual bidders;
• comply with CSRC fair disclosure rules; and
• prevent selective disclosure of insider information.

Process Management

The Board may:

• tailor due diligence scope and depth based on negotiation stage;
• limit sensitive personal or trade-secret information until framework agreements exist;
• negotiate due diligence extent in friendly acquisitions; and
• follow legal constraints in tender offer scenarios.

The Board must supervise the process to prevent unlawful insider information leaks while balancing disclosure obligations with confidentiality requirements and providing equal treatment to all bona fide bidders.

Regulatory Framework

China’s data privacy laws impose significant limitations on due diligence in M&A transactions, as follows.

• Personal Information Protection Law (2021) – Requires legal basis (informed consent) before sharing personal data with third parties.
• Data Security Law – Classifies healthcare data as potential “important data” requiring special protection.
• Human Genetic Resources Regulations – Mandate prior NHC approval for sharing genetic data with foreign entities.

Healthcare-Specific Challenges

Pharma and medtech companies face particular constraints:

• patient health records and clinical trial data require special handling;
• personally identifiable information cannot be disclosed to foreign buyers without authorisation;
• cross-border data transfer rules apply to international transactions; and
• cybersecurity assessments may be required for important data or large volumes of personal information.

Practical Compliance Approaches

To navigate these requirements, companies must do the following:

• anonymise or aggregate personal data in data rooms;
• provide only anonymous or aggregate personal information during initial due diligence;
• obtain necessary consents where feasible;
• establish data confidentiality and usage limitation agreements;
• ensure post-closing compliance with cross-border data regulations; and
• maintain certain data onshore if required by regulations.

Data privacy and security laws have become critical considerations in healthcare M&A, requiring careful compliance to avoid breaching China’s strict data protection requirements.

Threshold-Based Disclosure

• 5% shareholding – Acquirers reaching 5% ownership must disclose within three trading days and suspend further trading until disclosure is complete.
• 30% control threshold – Acquirers planning to obtain control (≥30% ownership) must make a mandatory general offer or partial offer, prepare a takeover offer report, and issue a public announcement.

Announcement Channels

The following channels are used to issue announcements:

• stock exchange website;
• designated news outlets; and
• detailed takeover reports made available to all investors.

Critical Timing Requirements

• Trigger events – Immediate notification and public announcement is required when:
1. share purchase agreements are signed;
2. ownership thresholds are crossed; and
3. board approves major reorganisation plans.
• Tender offers – Must remain open for at least 30 days; target’s board must publish response with independent financial adviser’s opinion.
• Negotiated control transfers – Transaction summary must be announced within two business days of signing.

All material information in public company M&A must be disclosed via stock exchange announcements according to strict deadlines, ensuring simultaneous information access for all investors and preventing selective disclosure of insider information.

Eligible Participants

• Only publicly traded companies may use shares as acquisition currency.
• Bidder must be a domestic listed company to offer shares as consideration.
• Acquirer issues additional shares to swap for target shareholders’ equity.

Simplified Disclosure Requirements

• No separate prospectus required for the transaction.
• Rationale – Bidder already publishes regular financial disclosures.
• No new public investors added (target shareholders become bidder shareholders).

Share Delivery Mechanism

• Newly issued shares delivered on acquirer’s existing exchange listing.
• Target shareholders receive naturally listed and tradable shares.
• Non-listed companies cannot directly acquire listed companies through share issuance.

Regulatory Framework

• Share-swap M&A limited to transactions between listed companies.
• No standalone prospectus required.
• Acquirer must disclose share issuance and transaction details through:
1. takeover report; and
2. related regulatory filings.

Standard Disclosure Requirements

• Cash acquisitions – No additional bidder financial statements required:
1. focus on deal details and source of funds only.
• Stock-for-stock transactions – No ad hoc financial statements required:
1. bidder must be a listed company with periodic financial disclosures already available; and
2. investors can reference existing public reports.

Special Case: Asset Restructuring

When M&A constitutes a major asset restructuring involving share issuance, disclosure is as follows.

• Target’s financial information – Required disclosure includes:
1. audited financial statements (typically last 2–3 years);
2. accompanying audit report; and
3. statements prepared under Chinese Accounting Standards or equivalent.

Accounting Standards

• Listed companies – Use their established accounting standards:
1. A-share companies typically use PRC GAAP (largely convergent with IFRS).
• Cross-border transactions:
1. IFRS or other accepted GAAP may be permitted for overseas-listed companies; and
2. explanation or reconciliation to PRC GAAP might be requested.

Financial statement inclusion depends primarily on deal structure; when required, statements must be audited and prepared according to approved accounting standards.

Regulatory Submission

• M&A transaction agreements must be submitted to regulators for review.
• Stock exchange rules require filing agreements with the exchange.
• CSRC and stock exchange examine key contractual terms:
1. purchase price;
2. payment conditions;
3. precedent conditions;
4. effective date; and
5. other material terms.

Public Disclosure Limitations

• Complete contract text typically not published.
• Listed companies required to disclose only essential terms via announcements.
• Full agreements kept on file but not publicly disseminated.
• Investors see summary of main provisions in disclosure documents.

Document Accessibility

• Official channels publish deal overviews.
• Detailed agreements archived at designated repositories.
• Investors/authorities can request inspection of actual agreements if needed.
• Some tender offer reports or merger circulars may include appendices with:
1. key clause excerpts;
2. summary of material terms; or
3. (rarely) the full text.

Transaction documents must be filed with regulators while public disclosure focuses on material terms rather than complete contractual content.

Fiduciary Responsibilities

Directors must act in the best interests of the company and all shareholders. Their primary fiduciary duties include a duty of loyalty and a duty of care. These duties generally do not extend to other stakeholders (employees, creditors) unless legally required. As an exception to the foregoing, directors of state-owned enterprises may need to consider policy objectives.

Transaction Assessment Requirements

Directors must carefully evaluate:

• strategic rationale behind the transaction;
• fairness of terms and valuation;
• potential risks and mitigations; and
• alignment with shareholder interests.

Healthcare-Specific Considerations

In healthcare sector transactions, directors should assess:

• impact on R&D pipelines;
• regulatory compliance risks; and
• integration challenges specific to healthcare operations.

Consequences and Avoidance of Breach

• Civil liability for directors who fail to meet duties.
• Potential regulatory penalties for non-compliance.
• Importance of well-documented, reasoned decision-making.
• Maintaining shareholder-focused approach to transaction evaluation.

Special Committee Formation

• M&A-specific special committees are uncommon in Chinese practice.
• Formal committees typically only formed when multiple directors have conflicts requiring recusal.
• Standard approach – Full board review with only non-conflicted directors voting.

Conflict Management Approaches

• When conflicts arise (director affiliated with buyer):
1. board may authorise independent, non-conflicted directors to assess the deal; and
2. formal committee formation remains rare.
• For related-party transactions:
1. conflicted directors must abstain from voting; and
2. independent directors required to issue specific opinions.

Exceptional Cases

• In high-conflict scenarios (eg, management buyouts with most directors conflicted):
1. independent directors may lead transaction review; and
2. external advisers typically engaged for additional objectivity.
• However, standard practice relies on existing independent directors’ oversight rather than creating special transaction committees.

Board Role and Defensive Posture

• Boards primarily serve as reviewers and advisers rather than defenders.
• Hostile takeovers remain uncommon in the Chinese market.
• Western defensive tactics (poison pills, etc) rarely employed.
• Board’s main function: evaluate proposed deals and provide shareholder recommendations.
• Ultimate decision authority rests with shareholders for major transactions.

Shareholder Dispute Resolution

• Litigation challenging board M&A decisions is rare.
• Minority shareholders typically express objections through:
1. voting against proposed transactions; and
2. exercising statutory appraisal rights.
• Derivative actions for fiduciary duty breaches technically possible but infrequent.

Strategic Implications for Acquirers

• Securing board and key shareholder support significantly mitigates legal risks.
• Transaction success factors focus on:
1. regulatory compliance;
2. transparent disclosures; and
3. alignment with major stakeholders.
• Acquirers benefit from reduced litigation risk compared to some other jurisdictions.
• Emphasis on relationship-building with key decision-makers facilitates smooth closings.

For M&A transactions in China, boards commonly seek independent advice to ensure transactions are fair and compliant. In a tender offer, regulations require the target’s board to engage an independent financial adviser to issue a report assessing:

• the bidder’s qualifications and financial capacity;
• the impact of the takeover on the target’s business; and
• the fairness of the offer price.

This report, issued by a CSRC-licensed financial institution (often a securities firm), functions similarly to a fairness opinion and is disclosed alongside the board’s recommendation.

For non-tender M&As, such as negotiated sales or restructurings, boards frequently consult investment banks, law firms and auditors for independent assessments. Independent directors must issue an independent opinion when evaluating related-party M&A transactions, and they typically base their assessment on third-party financial reports.

Fairness opinions are common in public company deals and state-owned asset transactions to protect minority shareholders. In private M&A, formal fairness reports are less frequent, though financial advisers are often engaged for valuation and structuring. Boards may also seek legal opinions, audit reports and valuation appraisals to ensure informed decision-making and mitigate risks.