Cross-border Transactions: Spotlight on China · • Hypercompetition. It is a serious mistake to think of China as a virgin market offering windfall returns. On the contrary: unlike

TR A N S AC T I O N

ADV I S O RY SE RV I C E S

Cross-border Transactions:Spotlight on China

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CO N T E N T S

CRO S S-BO R D E R TR A N S AC T I O N S: SP OT L I G H T ON CH I NA

Contents

1 “A World of Opportunity”

2 The China Question

6 Toward Transaction Success

8 Target Identification

10 Due Diligence

12 Valuation

14 Post-Merger Integration

16 Industry Sectors

22 In Summary

23 Transaction Advice in China

24 Ernst & Young Offices in China

1

“A World of Opportunity”

A message from Dave Read and Bob Partridge.

Today’s dynamic transactions market presents a world of opportunity. As corporations and other investorsturn their attention to international opportunities, they are looking beyond traditional markets to achievehigh growth and competitive advantage. Ernst & Young’s ‘Cross-border Transactions’ series aims to shedlight on the complex and rewarding transaction landscape in selected emerging markets.

‘Spotlight on China’, the third report in our series, provides an overview of the opportunity sectors,political context, and practical transaction considerations and challenges surrounding deal-making in thisattractive Asian powerhouse.

With its escalating consumer demand, outstanding economic growth and increasing foreign directinvestment opportunities, the China deal market has taken off. In 2005, US$31.5 billion total deal valuerepresented an impressive 22% increase volume over the prior year. In our recent Corporate DevelopmentOfficer Study, 59% of respondents stated they were actively looking to invest in China. Interest from theinternational community has never been greater.

With Ernst & Young Transaction Advisory Services practices in more than 70 countries, we are wellpositioned to understand the range of issues involved in investing in emerging countries, from targetidentification to due diligence and post-deal integration.

In China, our transaction team is comprised of professionals with extensive experience in navigating this complicated transaction environment. Our strength on the ground and close knowledge of industries,markets, regulatory and technical issues help our clients make the most of the opportunities in China. We look forward to hearing from you.

Best regards

Dave ReadGlobal Vice ChairTransaction Advisory ServicesErnst & Young

Bob PartridgeTransaction Advisory Services Leader – ChinaErnst & Young

TH E CH I NA QU E S T I O N

2 CRO S S-BO R D E R TR A N S AC T I O N S: SP OT L I G H T ON CH I NA

The China Question

A booming economy…China’s economic statistics make compelling reading:

• Growth. An annual growth rate averaging more than nine

percent over more than two decades has not only propelled

China above the UK into fourth place in the world economic

league table, it is also towing Taiwan, Japan, Australia and

much of the Asia-Pacific region in its wake. Chinese exports

in 2004 grew by 36 percent to US$595 billion, while imports

swelled by 30 percent to US$588 billionn. Growth rates of

similar magnitude are expected to continue at least until 2010.

• Scale. China has a population of 1.3 billion whose per

capita income has grown tenfold since 1990 and is

hungry for consumer goods of all descriptions.

Four percent of the population now has an income greater

than US$20,000, which may not sound much but actually

translates into 52 million people – equal to the population

of the UK. China constitutes the largest mobile phone market

in the world, and by 2020 it is estimated there will be 140

million automobiles on Chinese roads. In 2002 China

overtook Japan as the world’s second-largest PC market

and last year became the second largest internet user.

The property market, booming anyway in the fast-growing

coastal cities, has gone into overdrive as Beijing prepares to

host the 2008 Olympics. A total of US$160 billion worth of

construction is adding the equivalent of three Manhattans

to the Chinese capital, where work is also under way on

transportation and infrastructure projects, sports venues

and an airport terminal that will be bigger than all five

London Heathrow terminals combined. The scale of this

development, unprecedented anywhere in the world, means

that China accounts for around 30 percent of global demand

for many basic commodities, including oil, coal and steel.

• Resources. Chinese wages are low – and so also is average

productivity. On the other hand, for those willing to seek

it out, the country also possesses an increasing pool of

engineering talent from Chinese universities, an improving

management group as ‘returnees’ repatriate their experience

from Hong Kong, Taiwan and the US, and a legendary

risk-taking and hard working culture that encourages

entrepreneurship and permits failure.

• Capital markets. The last two years have marked the

emergence of China as a serious factor in global capital

markets. In 2005 the country accounted for three of the

world’s top 10 IPOs – the US$9.2 billion float of China

Construction Bank (CCB) was one of the largest IPO deals

ever. All told, Chinese companies raised US$19 billion in

2005, up 50 percent on 2004, and the stream of issuers shows

no sign of drying up. Rather the reverse: with the Chinese

government intent on pushing forward the reform of the

industrial base, as well as a number of mega-deals in the

offing, the Chinese authorities plan to sell off 1,300

second-ranking state-owned enterprises (SOEs) in whole

or in part in coming years.

• Foreign investment. China is attracting record quantities

of foreign direct investment (FDI), with totals running at

around US$60 billion for the last two years. In 2004,

China was the world’s preferred FDI destination: reportedly

450 of the world’s top 500 companies have a presence there.

And many of their enterprises are profitable: according to

the US Department of Commerce, US firms enjoyed net

returns of US$6 billion in China in 2002, a sixfold increase

over 2000. Seventy-one percent of US firms reported China

profit rates equal to or higher than their global average.

Among many others, profitable investors in China include

Procter & Gamble, Coca-Cola, AIG, Alcatel, Carrefour,

Kodak, Motorola, Nestlé, Novell, Siemens and Volkswagen.

What to do about China? Whether as market, low-cost manufacturing base or, eventually, competition for its own products, the‘China question’ will at some stage confront every company of any size on the world stage. Given the current hype surroundingthe country, the chances are it already has.

3

Given these macroeconomics, it is not surprising that many

foreign companies see China not as an option but as a

competitive necessity. As the figures correctly indicate,

corporations are jostling to do deals in China, and many are

succeeding. Yet on the ground they are finding, sometimes

to their cost, that the reality undercuts the optimism:

• An emerging economy. For all its size, China is an

emerging economy. Despite the evident frenzy of activity,

it is frustratingly difficult to get an accurate handle on what

is really going on, whether at industry level or even within

a firm. The legal framework for M&A and property rights

in general is hazy, and cultural differences can easily lead

to misunderstandings and a mismatch of expectations.

• Midsize. Fast-growing as today’s China is, as McKinsey

notes a 2005 estimated GDP of US$1.8 trillion makes it

no more than a midsize economic power. Even if current

growth trends hold, it will not catch up with Japan until

2020 and the US before 2040. That is, for most companies’

planning horizon they will be competing for share of an

economy similar to European nations such as the UK,

Italy and Germany.

• Extreme contrasts. Although the scale of the Chinese

market is indeed huge, the contrasts are also extreme.

While average annual income reaches US$2,000 and above

in the eastern coastal cities (US$5,000 in Shanghai), it is a

fraction of that in the smaller cities, and some of the rural

areas of the interior have been barely touched by modernization.

These account for nearly half of the Chinese economy.

While there is a burgeoning Chinese middle class, reaching

mass consumer markets will likely require very different

product market approaches from those corporations are

used to at home.

Figure 1

Figure 2

Foreign Direct Investment into ChinaU.S Dollars in Billions

Tomorrow’s GiantsThe largest economies in 2050

TH E CH I NA QU E S T I O N


• Hypercompetition. It is a serious mistake to think of China

as a virgin market offering windfall returns. On the contrary:

unlike Russia, where the privileging of heavy industry in

the Soviet era left both consumer and small-firm sectors

underdeveloped, China is characterized by intense competition

and entrepreneurial activity in almost every field. This is

both natural inclination and deliberate policy: while SOEs

remain large in number, government ownership is declining

rapidly as privatization is employed as a means of driving

out inefficiencies. Apart from sensitive sectors such as

energy, telecoms and defense, most of China’s industrial

output is now generated by energetic private-sector

companies, whether domestically owned or with foreign

investment. Wafer-thin margins are the rule in most industries,

and entrepreneurial domestic companies are used to subsisting

on them. Even when an incomer has a technological or other

advantage, weak intellectual property (IP) laws mean that

it is not uncommon to find a local competitor springing up

down the road making a product that is the same in all but

name – but selling at two-thirds of the price.

• Overheating. The property sector is precariously poised.

The central bank warned last year that China was facing a

potential property bubble whose bursting could leave banks

– and their foreign investors – with huge losses. Since then

prices have retreated, with the danger of a further increase

in non-performing loans (NPL) which are already an

enormous overhang for the Chinese financial system.

• The Google factor. China does not allow some of the basicdemocratic freedoms taken for granted in the West.Companies hoping to do business there may have to maketough decisions about the extent to which they can acceptstate interference with their business principles, as in thecase of Google and Yahoo!

More complicated than it looks

Turning to the supply side, all this means that the answer to

a corporation’s ‘China question’ is not as evident as it might

seem at first. There are two points to this: one relating to

strategy, the other to deal execution. As to strategy, in the

almost irresistible current buzz about investing in China, some

investors are in danger of forgetting to establish clear strategic

guidelines for the venture. Such a failure may create problems

not only in companies’ initial approach to the market but also

in the way they conduct the deal itself.

The first and most important question a company must answer

about entry into China is ‘Why?’ ‘Because it’s there’ or, just as

common, ‘Because everyone else is there’ is not sufficient.

Ten years ago, China strategy was about sourcing: establishing a

low-cost manufacturing base to serve the rest of the world. Today

the options have multiplied to include participating in China’s

market growth from inside, or even exporting to it. Each of these

involves a different path. If the first, it is important to bear in mind

Chinese determination to move up the value chain by moving

from being ‘the world’s manufacturing center’, based on

labor-cost and efficiency advantages, to a ‘world-class innovation

center’. If the second, companies must be aware that in many

industries – automobiles, pharmaceuticals, food and drink and

consumer electronics, for example – early-mover advantages have

been and gone and industry positions are already well established.

Volkswagen has been in China for 20 years, Motorola for 15.

Correspondingly much larger investments will be needed now to

disturb existing industry patterns. Whatever the rationale for entry,

incoming corporations will struggle unless they can demonstrate

that they are bringing something distinctive to the market that

isn’t already being contributed.

The China Question continued…

5

Secondly, is the strategy to source a product, or, going beyond

sourcing, to take an equity interest? If the latter, it is critical

to be aware from the outset that while doing deals in China

can be good business justifying all the hype, it is also different

from anywhere else on earth. It is not only that they cannot

be done overnight, and returns may take years to emerge.

The bottom line is that for a variety of causes the large majority

of deals never get beyond the early stages. Advisors estimate

that behind headline figures suggesting that everyone is doing

business in China are three ‘hidden truths’:

1. For every deal that completes and is included in the

statistics, many others fall at the first or second hurdle.

Just 20 to 30 percent of all Letters of Intent (LOI)

finally make it through to a signed contract;

2. To get to that point may take a year or 18 months.

Two years can easily elapse before a unit is operational

on the ground;

3. Even after a deal is signed, agreements can still be

complex to complete. It may take up to five years to

tell whether a transaction will pay off. There have been

several recent cases of withdrawal after several years of

hard work with the realization that expectations on each

side were too divergent for the deal to work.

Some of the reasons for the high failure rate for deals in

China are to do with the unique environment: lack of reliable

information, unclear financials and governance, legal and

ownership uncertainties, and the need for regulatory approval

at all stages of the transaction. Others are in the expectations

that acquiring parties bring to the deal – for example a

surprising number of transactions fall at a late stage when

the acquirer discovers that, as often the case in China,

the target is unwilling to surrender a controlling interest.

China’s unique circumstances make conducting cross-border

transactions a challenge even for hardened operators.

However, although it is easy to trip up, the record of

successful corporations shows that the prizes for those that

stay the course are considerable. The lesson of experience to

date is that with the aid of trusted advisors determined and

resourceful corporations can alter the odds in their favor by:

a) carefully understanding the context and

b) taking some simple but essential precautions that increase

the chances of success and minimize transaction risk.

The rest of this report outlines how this should be done, and

the prospects for transactions in some of the most important

economic sectors.

TOWA R D TR A N S AC T I O N SU C C E S S


Marco Polo reportedly took 20 years to do his first deal in

China. Modern transactions are less time-consuming than that,

but they are still a test of patience, nerve and the ability to

maintain a balance between flexibility and knowing when to

stand on principle. While the components of the transaction

lifecycle – target identification, due diligence, valuation and

post-merger integration – are in principle the same as

anywhere else in the world, in practice in China they are

very different. This is the result of both cultural factors and,

overshadowing all, the dominant role that the state continues

to play in the economy, directly affecting potential investors in

a number of ways.

• The government still controls and allocates most of

the country’s financial resources, generally privileging

physical infrastructure and large industry projects.

By contrast the ‘softer’ infrastructure – the institutional

framework of law and IP rights, banking system and

accountancy – is less well developed.

• The economy is heavily regulated. The government directly

controls all economic activity through the ‘visible hand’ of

tax laws and regulations, capital-market and foreign-exchange

controls, and investment approvals. Regulations can change

unpredictably: in 2005 new foreign-exchange rules had the

effect of making it more difficult for Chinese entrepreneurs to

structure start-ups for foreign IPOs, leading in turn to a fall-

off in venture capital financings. After representations, the

rules have since been changed again. Although investment

restrictions are being gradually relaxed since the country’s

admission to the World Trade Organization (WTO) in 2002,

requirements and conditions are complex, often varying from

industry to industry, as do the central agencies that deal with

them. Percentages of a company that foreign investors are

permitted to buy vary by sector; in sensitive ones only a

minority foreign interest is allowed, or even none at all.

These percentages too are subject to change, although

usually in the direction of liberalization.

Toward Transaction Success

Figure 3

Deal Activity Announced & Completed 2004-2005Deal Value US$million and Number of Deals

7

• China’s tax system is also complicated, involving national,

provincial, city and even district tax authorities, each with

its own regulations. Special Economic Zones are different

again. A wide variety of tax holidays may be available.

How the various regimes affect a company depends on its

industry, location and corporate structure. Taxes are a big

issue in any China transaction.

• Despite the progressive opening of the economy to the

market mechanism after 1979, there still exist an estimated

150,000 SOEs, many small or midsize, that have been used

to operating in a business environment radically different

from the free markets of the west.

There are two important practical consequences for would-be

investors. First, it is essential to engage a team of professional

advisors at the start of any transaction process. The need to

understand the context and keep up with rapidly evolving

regulation means that the team should include mainland

Chinese talent as well as the usual specialist expertise.

Local experience is essential in conducting negotiations and

building trust. Second, there is an ongoing need to maintain

relations with a complex bureaucracy at a variety of different

levels, including local as well as central government.

This can be frustrating and is certainly time- and energy-

consuming: laws and regulations passed by Beijing are often

interpreted differently at municipal or province level;

sometimes they are hard to comprehend; different levels or

agencies may seem to have conflicting aims. Conversely,

however, good relations with government are a significant aid

to doing business in China, and prudent investors will make

establishing them an early priority. Many large corporations

set up specialist departments to handle them.

The other essential prerequisite for dealmaking in China is to

understand that most deals are asset sales and take the form

of joint ventures or the purchase of a stake in a Chinese

company. While Wholly Foreign Owned Enterprises (WFOEs)

are increasing as sectors are opened up to foreign investment,

they are still not the norm. Even in industries where WFOEs

are permitted, however, they may not be easily obtainable,

since Chinese owners are often unwilling to give up majority

control – or if they are, it may be because the deal is

overvalued. Many deals are not concluded because after a

year or more of careful bridge-building targets may refuse to

sell more than 49 percent. It is important that parameters such

as these are set from the outset.

TA R G E T ID E N T I F I C AT I O N


Target Identification

Finding and closing on good deals is difficult in China.

The challenge begins with target identification. On one hand

the vastness of the country, communication issues and lack of

systematic industry information are all factors to be reckoned

with. Increasingly investors have to look outside Shanghai and

Beijing for potential targets. On the other, Chinese companies

have no history of disclosure (in fact the reverse), little notion

(and in many cases suspicion) of what a foreign investor is

looking for and scant experience of professional advisors.

In any case, numbers of the latter, although increasing rapidly,

lag some distance behind demand, adding to the pressures

on search resources.

In these circumstances, conventional methods such as desk

research, testing the market from abroad on a frequent-flyer

basis or even using teams of advisors to draw up a list of

candidates on the basis of strategic industry analysis are of

limited use. Sourcing deals in China is as much art as science.

Prudent companies approach it as a learning experience for

both sides: on the one hand a process for making targets

aware of Western expectations, on the other a cross between

prospecting the market and clarifying what corporate decision

makers are prepared to live with in terms of control (or lack

of it), regulation and bureaucratic interference in return for the

perceived advantages of growth and competitive positioning.

Sourcing transactions in China is best treated as a two-part

process. The initial, prospecting part is primarily a matter

of networking – that is, building industry and official

relationships, informal networks and establishing contacts.

Again, in this process a mainland Chinese presence on

the team is highly recommended. Building trust and mutual

comprehension is a necessary part of the delicate initial

process, and can make all the difference between

making an exploratory contact and moving on to more

substantive discussions.

Having established promising contacts – which may take

several months – the second phase of target identification is

filtering candidates that are a good enough strategic and

cultural fit to be worth seriously pursuing from those that are

not. Given the sensibilities and low reliability of initial

information, this is a sensitive process at which many

companies stumble, often because they fail to get outside

help in weeding out the deals that are destined to be among

the majority that never close. Investors may believe that it

requires more time to court a target with a view to building

trust before getting down to business. Moving directly to due

diligence is sensitive (the nearest equivalent to ‘due diligence’

in Mandarin is a word meaning ‘investigation’), the target may

back off and play for time.

9

This may prove to be a mistake. Targets may try to exploit

hesitation to stall or attempt to lock investors into untested

valuations or conditions. And having spent a year or more

reaching this stage, the investor can get so heavily involved

emotionally in the transaction that it becomes near impossible

to draw a line and cut the losses. Instead, target selection (as

opposed to prospecting) should be thought of as execution,

using the same disciplined approach as applicable anywhere

else. Of course it needs to be modified to fit with cultural

expectations, and target companies will usually need

assistance in understanding investor needs. But experience

shows that companies that are serious about doing a deal

will seldom turn down a polite but business-like request to

bring in external advisors for ‘initial data gathering’ and to

‘facilitate’ a potential transaction. Those that resist are likely

to be part of the majority that fail to materialize, at least

without significant overvaluation.

A final point in target identification is the need to have a

deal structure in mind at an early stage. This is partly to do

with the regulatory environment, which may make alteration

difficult at a later stage. It is also important in relation to the

exit mechanism, which needs to be a consideration from the

outset, in both worst-case and best-case form.

DU E DI L I G E N C E


Due Diligence

Due diligence is a critical step in any transaction, butparticularly so in China. The backdrop is a country that isundergoing a dual transition from centrally planned to marketeconomy, and from an emerging to an industrialized economy,in which the business environment is in constant change.

Due diligence is the point where this evolving business culturemeets the very different norms of more developed markets, and as such it plays an important role as a process hurdle aswell as the normal one of reducing risk for the investor. Many potential deals fail at this stage. Common issues forpotential acquirers are:

• Accounting differences. Are the target’s financial

statements audited by an international accounting firm?

If not, caution is in order since accounting practices and

auditing standards in China generally do not meet even

China GAAP standards. Converting financial statements

to the more restrictive US GAAP can often result in

lower reported revenues, unexpected charges related

to business combinations and reduced net profit due to

stock-option accounting.

• Transparency and management processes. Accounting and

management practices and procedures are often vague in

Chinese companies, with information kept in heads rather

than in books. There is no tradition of disclosure, which is

kept to a minimum. Proper documentation and internal

controls are lacking, with implications for governance as

well as everyday management. All management figures

should be treated as a starting point for discussion rather

than undisputed fact.

• Governance. Corporate governance in China is very often

weak or non-existent, even among quite large firms.

Financial and accounting functions are not held in high

esteem, and few of the protections for shareholders or

aids to reputation-building deemed essential in foreign

markets are in place. Practices such as tax avoidance and

payments to induce sales are common. Since Sarbanes-

Oxley, such matters are a critical due diligence area for

corporate buyers. In some cases they may be a deal-breaker;

at the very least investors must recognize the need to start

building the foundations for sound governance practice

from the earliest stage to ensure their ability to exit.

• Tax. Understanding a target’s tax situation is a critical part

of due diligence. Most Chinese companies take an

aggressive stance on tax reduction, often keeping

different sets of books for the tax authorities and internal

management (sometimes to the point where it is difficult

to establish what the real position is). Tax due diligence

often reveals significant hidden tax liabilities that affect

the bottom line. Value Added Tax, typically the heaviest

charge, is a favorite for underreporting. Hidden problems

need to be carefully probed: Since there is no statute of

limitation in China, a disgruntled employee can report tax

violations to the authorities at any time, potentially

exposing the company to prosecution. On the other hand,

a variety of historic or potential tax holidays may render

income tax liabilities negligible.

• Ownership and land-use rights. A common issue

encountered by potential acquirers of SOEs, and most

other Chinese companies, is that land is owned by the state.

Issues of transferability of land-use rights often arise in

due diligence and sometimes have significant financial

implications as the state may require payments for

land-use rights before authorizing a transaction to close.

• Social communities. Most SOEs in China operate as

‘social communities’ – that is, they have responsibility for

maintaining employee housing, hospitals, schools, restaurants

and even roads on their books. As these are carved out from

a target entity, foreign investors may be expected to continue

to provide these social services post transaction close.

11

Level of transparency infinancial information

Normal duration of duediligence

Preparation time required bytarget company before duediligence

Basis of financial statements

Audited financial statements

Extent of related partytransactions

Disclosure of contingentliabilities

Reliance on computerizedaccounting systems

Reliability of representations

Enforceability ofindemnification

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

High

1-8 Weeks

Minimal

US GAAP or IFRS

By reputablestandards

Varies; typically fullydisclosed

Usually transparent

Typical

Normally reliable

Strong; backed bycourts

Low, if any

3-12+ Weeks

May require extensive assistance

PRC GAAP, at best

Typical notreliable fromUS GAAP orIFRS pepective

Usually extensive;inadequate disclosure

High risk area and rarely disclosed

Evolving; dependanceon manual processes

Untested

Untested; may need toconsider “holdbacks”

U.S./EUROPE CHINA

Table 1

Doing Due Diligence: U.S./Europe vs. China

This might seem a challenging list, and to the extent that

the factors will affect each target in individual ways, every

aspect will need to be analyzed in detail. On the other hand,

the major areas where problems may hide are by now well

known. The due-diligence process will undoubtedly take

longer in China than it would elsewhere, but careful selection

of targets and observation of the ground rules can ensure

that deals proceed to a satisfactory conclusion.

1. Manage internal expectations. Going into due diligence

with the right expectations is critical for US and

European investors. As we have seen, the quality of

information and business process is lower than they

are used to, resulting in the need to carefully explore

risk areas. It is important to prevent deal closure

from becoming an end in itself, irrespective of

business rationale. Corporate Development Officers

counsel strong emphasis on managing internal company

expectations and avoiding overcommitment to the

potential of a Chinese investment before the implications

of due-diligence findings have been digested and

incorporated into realistic valuation estimates.

2. Listen for the word ‘no’. One of the most fertile areas

for misunderstanding is around the words ‘yes’ and

‘no’. Asian cultures are less direct than Western, and

just because Western negotiators rarely hear their

Chinese counterparts saying ‘no’ does not mean they

are entitled to understand ‘yes’. Avoid being drawn

into a false (and drawn out) process of assuming

cooperation without defined actions and deadlines.

When discussing potentially contentious items, it is

best to put understandings in writing (English and

Chinese) and agree on dates where appropriate.

3. Be prepared to go the distance – but no further.In any overseas deal market, transaction success

requires patience and tenacity. Nowhere is this more

true than China, where the timeline from Letter Of

Intent to closing can stretch from six to 18 months

or more. Not all deals will close, or are worth closing.

Knowing when to hold and when to fold is likely to be

the difference between failure and success.

The No 1 success factor, as already noted, is the early

involvement of professional advisors. It is also essential to:

VA L UAT I O N


Valuation

Valuation is not straightforward in China. Low reliability of

accounting figures and hidden liabilities that are only surfaced

in detailed due diligence can make a substantial difference to

the initial financial picture, so it is important not to get locked

in to a valuation estimate too early on. Does the company

possess the licenses it says it does? Does it actually own the

rights and property it is purporting to sell? Particularly on the

part of SOEs, there is considerable resistance to revising a

valuation downwards, even when the legal position turns out

to be different from what was originally represented.

In addition, targets may hesitate to commit themselves to any

valuation for fear of having to account for it later. Again, this

is particularly the case for managers of SOEs, who to avoid

any possibility of later charges of selling state-owned assets at

below market value may prefer a competitive auction for

disposal. Investors should expect to spend significant time and

effort explaining the transaction and ensuring that target

managers understand what it entails. This is essential not only

for valuation purposes but also to get the post-closing phase

started in the right direction.

In a highly active deal market, investors should beware of the

recurrent danger of entering into a transaction on the basis of

limited information by the threat of it being passed to

someone else. At a time when everyone wants to do deals and

buyers outnumber sellers, this may be hard to resist – particularly

when valuations may be partly guesswork. Despite the

institutional downsides, prices in China are rising as

entrepreneurs play investors off against each other and

buyers begin to explore areas outside the main cities. As ever,

accurate valuation depends on timing as much as the quantity

and quality of assets and may only be confirmed by hindsight.

The high price of an apparent bargain may only appear several

years down the line, and the reverse can also be the case.

13

PO S T-ME R G E R IN T E G R AT I O N


Post-Merger Integration

Closing a deal in China is cause for celebration. But it is a

common mistake to assume it is the end of the challenge.

In fact it is day one of a new and equally critical phase:

ensuring the previous hard work in completing the transaction

pays off by putting in place processes, structures and people

who will manage and develop the enterprise on the ground.

The structure will already have been agreed. It is important to

implement it correctly and to insist from the outset that agreed

standards are adhered to in the running of the business.

The pragmatic approach of Chinese owners towards risk, for

example, will not be acceptable in the new venture. Raising

the bar will be considerably easier if the investor has control and

can manage the business in its own way up to international

standards. Even so, it will still have to deal with local middle

management and staff, and as with any acquisition managers

will need to spend time communicating expectations, values

and management principles that will apply going forward.

On the other hand, investors will frequently be working with

Chinese partners in joint ventures where they do not have full

control. This puts understanding the needs and viewpoints of

the Chinese partner at a premium, and aligning the goals of

both sides of the partnership is essential. Again, failure in the

name of building trust to clarify issues around exit or continued

business expansion, or what is negotiable and what is not, is

likely to come back to haunt investors further down the line,

sometimes even several years later.

Even assuming complete control, building a balanced

management team in China presents challenges.

While domestic managers are entrepreneurially oriented, they

typically lack global experience. Now a steady stream of

management returnees is beginning to supplement local talent

with valuable international experience, but expatriates will

often have forfeited the local networks and understanding of

local markets that are another crucial ingredient in getting an

operation up and running.

This means that management teams in China will require

significantly more oversight and hands-on mentoring than

in the case of an acquisition in the US or Europe. Particularly

important is clear guidance in implementing corporate

governance, financial reporting and other documentation and

management processes.

In particular, as in any emerging market, investors need to

factor in the cost of building robust financial functions from

day one. As a deal closes, acquirers should ensure that they

have the appropriate financial or financial control function in

place. Failure to do so increases risk unacceptably. Even large

quoted Chinese companies concede that they are as yet some

distance from complying with international standards for

internal controls and governance. Hard work on improving

these processes at every level of the company is a first priority

for attention in any Chinese transaction.

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

IN D U S T RY SE C TO R S


Automotive

With a recent growth rate of more than 30 percent a year, the

Chinese vehicle market is the third largest and fastest growing

in the world, making it a magnet for cross-border investment.

From a base of extremely low ownership levels (just 0.5 percent

of the population own a vehicle compared with 80 percent in

the US), latest estimates are that by 2020 there will be 140

million cars on Chinese roads, seven times today’s total, while

annual sales could rise from 4.4 million to 20.7 million units.

China is expected to account for 30 percent of global market

growth between now and 2010.

The Chinese auto industry is already the world’s fourth largest

after the US, Japan and Germany. It comprises 128 producers,

three of which (FAW, SAIC, and Dongfeng) are among the

world’s 22 largest. In 2005, Nanjing Auto outbid the larger SAIC

to take over the UK’s failed Rover group. Although Japanese

and Western firms are well represented in China – Volkswagen’s

partnership with SAIC goes back to the 1980s – the industry is

attracting substantial further investment: under current plans,

foreign car firms and their local joint-venture partners plan will

invest US$15 billion to triple output to more than 7 million cars

by 2008 (although VW has since announced a scale-back).

Until now the auto industry has been tightly regulated, with

contradictory effects. On the one hand, since WTO accession

prices have fallen and consumer demand has grown enormously,

creating opportunities in ancillary markets such as repairs,

Industry Sectors

replacement parts, petrol retailing, insurance and even valeting

services. On the other, government intervention has held

development back by confining foreign investment to joint

ventures, compelling them to purchase components from local

suppliers and using tariff barriers to shield the market from

competition from imports. Productivity of foreign joint

ventures is low compared with that of plants in Japan or the

US, despite low labor costs.

Under the current industry plan, revised in 2004, the government

intends to make autos a ‘pillar industry’ of the economy by 2010.

Goals include consolidation to create five large and competitive

automotive groups, coordination of industry and infrastructure

to boost competitiveness, and the creation of powerful brands.

Some of the restrictions on foreign capital will be relaxed –

JVs can be more than 50 percent foreign owned if producing

for export – and tariffs will continue to come down as the

government aims at self-sufficiency in production by 2010.

Investors will be expected to bring in international-standard

knowhow and technology, and to develop proprietary IP.

Vehicle exports, primarily to developing countries and the

rest of South East Asia are anticipated to grow slowly, while

parts sales, which totalled US$7.4 billion in 2004, are being

sharply boosted as multinational assemblers seek low-cost

suppliers to cut component costs. Visteon, the second largest US

component maker, says it expects China to be its biggest market

by 2010. Tenneco, another parts maker with five JVs operating

in China, also recently announced a substantial expansion.

Passenger Vehicles

Commercial Vehicles

Total

Table 2

Chinese vehicle registrations.

Chinese vehicle registrations (millions)

2.61

2.96

5.57

3.14

3.17

6.31

3.56

3.36

6.92

3.95

3.62

7.57

4.29

3.83

8.12

4.68

4.07

8.75

5.10

4.26

9.36

5.53

4.42

9.95

6.00

4.58

10.58

6.42

4.67

11.09

2015

6.86

4.84

11.70

Source: Economist Intelligence Unit: Autopolis

17

Financial services

The best strategy for cross-border entry into China is often

to secure an industry position in the interim period of semi-

liberalization before the full competitive free-for-all begins.

This is the position in financial services, where foreign players

have been fighting to gain a strong position before the sector

is fully opened up under the second phase of WTO deregulation

to foreign competition at the end of 2006.

In the last year foreign investors have done deals worth no

less than US$18 billion with some of China’s largest

state-owned banks:

• American Express, Goldman Sachs and Allianz, the German

insurer, bought a 10 percent stake in Industrial and Commercial

Bank of China (ICBC), the nation’s biggest, for US$3 billion;

• Bank of America and Singapore’s Temasek invested US$4.1

billion in China Construction Bank (CCB);

• Royal Bank of Scotland, Merrill Lynch and Hong Kong’s Li

Ka-shing took a US$3.1 billionn, 10 percent stake in Bank of

China (BoC), the mainland’s second biggest lender, with

another 10 percent going to Temasek for the same amount;

• HSBC spent US$1.7 billion on a 20 percent share of China’s

fifth largest bank, Bank of Communications (BoCom).

In addition Citigroup led a consortium bidding US$3 billion

for an 85 percent stake in Guangdong Development Bank,

which would make it the first foreign bank to gain control

of a Chinese lender.

These are part of drastic moves to reform China’s banking

sector which will turn the major institutions into joint-stock

companies, reduce state shareholdings and introduce strategic

overseas investors. They follow the flotation of three major

Chinese banks, including CCB, in Hong Kong last year in

IPOs which raised nearly US$15 billion and were among the

world’s biggest of 2005. More are scheduled to follow,

including a number of smaller join-stock and city banks which

have already benefited from foreign investment. The intention

is that overseas strategic investors will bring in not only

capital, but even more importantly world-class management

expertise, technology and corporate governance experience to

enable them to compete with the foreigners when competitive

restrictions are lifted at the end of the year.

There is a great deal riding on the reforms, for both sides.

Since China opened up to the world in the late 1970s, the banks

as government agencies have been almost wholly responsible

for channeling China’s massive savings into industry and

development, with results that can only be described as mixed.

Chinese capital productivity is not nearly as high as it needs to

be to maintain current growth rates, and much of the flow has

ended up as non-performing and ‘special mention’ loans - an

already huge overhang which would be greatly increased in the

case of a property crash. Most NPLs have been moved into

state-owned vehicles designed for the purpose, avoiding the

worst, but the profitability of Chinese banks is still insufficient

to generate the internal capital needed to support current

levels of loan growth. Hence the need for overseas knowhow

to boost the sector’s efficiency, transparency and governance.

For investors, the attraction is access to China’s huge domestic

market in savings, consumer lending, insurance and credit

cards, particularly the last two:

• While consumer lending has been growing steeply, credit

cards in China are in their infancy. McKinsey predicts

exponential growth in this sector, with profits growing to

US$1.6 billion by 2013.

• The Chinese insurance sector is characterized by low

penetration and strong premium growth. Among emerging

markets, it is the second largest after South Korea and the

fastest-growing (more than 30 percent in 2003). At least

20 Sino-foreign insurance joint venture deals are currently

in operation. With the elimination of the ‘iron rice bowl’

social security net and increasing geographical and product

liberalization, both life and non-life sectors are anticipating

continued strong growth in the years ahead.



Pharmaceuticals

China has for some time been a focus for the global

pharmaceuticals industry. Currently ranked ninth largest drugs

market in the world, it is expected to become the largest by

mid-century. According to US-based researcher IMS Health,

China was the world’s fastest-growing pharmaceuticals market

in 2004, demand growing 28 percent to US$9.5 billion

(official Chinese statistics put the totals much higher, probably

as a result of different industry definitions). Provisional

estimates for 2005 reflect growth rates of a similar magnitude.

Although per capita healthcare spending continues to be far

below international levels, expanding demand is driven by

population growth in general coupled with a rising middle

class that is rapidly becoming both more health conscious

and affluent and is expected to spend a higher proportion of

its income on healthcare as it does so.

However, there is a vast gulf between the situation in the

wealthier cities and the rural interior where healthcare

provision is minimal and costs are almost entirely borne by

individuals. To keep healthcare affordable for poorer citizens,

the government is maintaining heavy pressure on pharmaceutical

firms to restrain prices (drugs represent 60 percent of China’s

healthcare spending, compared with 10-15 percent in OECD

countries); in the last six years there have been 16 rounds of

price cuts, saving consumers US$3.6 billion, according to one

report. More cuts are anticipated.

On the production side, the industry is both highly fragmented

and fiercely competitive: according to the Economist

Intelligence Unit 70 percent of the market is shared by

more than 5,000 domestic manufacturers. The top 10 control

just one-fifth of the market, compared with up to half in

developed markets. Unsurprisingly, the focus is on low-cost

manufacturing, and R&D and quality levels are low.

Counterfeiting is an endemic problem.

Foreign pharmaceutical firms are not new to China, some

having maintained a presence for 20 years. Of the world's

top 25, 20 are already in place; in total an estimated 1,700

Sino-foreign joint ventures are estimated to be in operation

accounting for investment of US$2 billion. Despite the

already substantial foreign presence, however, observers

believe that today's circumstances and policies are creating

new opportunities and incentives for market participation:

• WTO accession has reduced entry barriers and freed areas such as pharmaceutical distribution to foreign firms. While IPR and patent protection undoubtedly remain issues for multinationals, the authorities are beginning to respond to pressure from global watchdogs as well as the domestic industry to enforce patent rights and crack down on counterfeiters;

• The government is using both regulatory pressures and the threat of consolidation to raise industry quality and efficiencylevels. It is counting on foreign knowhow and scale to boost R&D and help move the industry up the value chain. Multinationals are better placed to weather these and margin pressures, and are expected to take market share in the future.

Industry Sectors continued…

19

Retail and consumer goods

Fuelled by a vast population, increasing spending power, and

a rapidly expanding middle class, China’s booming consumer

market is attracting renewed attention from foreign retailers

eager to share in the country’s continuing growth. Although

the consumer goods sector is already competitive in many

areas (including consumer electronics, processed foods and

others), the fast developing retail industry is being given a

significant boost as China moves to implement WTO

commitments, for example freeing investors from previous

zoning and other restrictions. Since the end of 2004, limitations

on number of outlets, ownership and geographical location of

stores have been removed.

As well as by the freer operating environment, further retail

development (particularly in the shape of hypermarkets,

specialty stores and discounters, among others) is favored by:

• Fast growing consumption expenditure (currently 42 percent

of the total) that is predicted to overtake GDP growth rates

from 2007;

• An emerging middle class with a consequent move towards

added value (higher product/service quality), more attractive

shopping environments, increasing brand consciousness;

• Continued rapid movement from the cities to the countryside.

42 percent of Chinese now live in the cities, compared with

27 percent in 1990. Urban disposable incomes grew nearly

12 percent in 2004 to US$1,139. Sales tend to be

concentrated in the coastal cities – in the top six (Beijing,

Shanghai, Guangzhou, Tianjin, Wuhan and Chongqing) total

retail sales reached US$112 billion in 2004, making up

one-fifth of the national aggregate. Attention is now

beginning to switch to smaller cities with populations

from 1-4 million, which offer large development potential;

• Low levels of consumer lending, which only began in

1997. Although take-up is rapidly increasing, credit cards

currently account for just 0.3 percent of annual sales.

Foreign retailers are well represented in China – it is estimated

that four of the world’s top 10 chains, 35 of the top 50 and 78

of the top 250 have opened stores there. Carrefour, Wal-Mart,

Hoyondo and EK-Chor Lotus figure among China’s largest

chains and have made the country a key supply source: Wal-

Mart sources up to US$18 billion from China, Carrefour more

than $3 billion. However, there is a long way to go. There were

302 foreign invested enterprises at the end of 2004 with a total

of 3,903 stores. That compares with a country-wide total of 19

million stores, to which 800,000 new ones are added every year.

Energy

Although the sector is tightly controlled, Chinese energy in all

its forms continues attract high levels of cross-border investment.

Fuelled by high economic growth rates and rapidly rising

standards of living, Chinese energy demand is outstripping

domestic supply. This, plus growing environmental concerns,

makes oil, coal and gas a major strategic and domestic

preoccupation for the authorities. As they try to assure supplies,

increase efficiencies and modernize outdated facilities, there

is a ferment of restructuring and consolidation under way,

yielding opportunities for M&A and new joint ventures in

major projects. To generate the vast funds necessary, stock-

market conditions permitting a large number of IPOs of

state-owned energy and utility companies are in the pipeline.

Two-thirds of Chinese energy is supplied by coal, of which

China consumes 30 percent of the world’s output. It also has the

world’s largest reserves. The industry is highly fragmented and

inefficient, however, with many large concerns coming to the

end of their working lives. To reassert control and boost production,

the government is setting up 13 major production bases, covering

70 percent of total national reserves. Although reserves are

plentiful and cheap (despite steady price rises since deregulation

in 2002), there is a major concern with pollution. Cleaner coal

technology will be greatly in demand going forward.



Although it accounts for just 8 percent of global oil consumption

compared with 25 percent in the US, China consumed as much

as 40 percent of the increase in global oil demand over the past

four years and is now the world’s second largest importer.

Demand can only grow as incomes rise and more households

afford cars and energy-consuming household appliances. Heavily

supported by the government, the Chinese national oil companies

– the ‘Three Sisters’ – are themselves investing aggressively

across borders. They are already in 12 countries – CNOOC is

the largest producer in Indonesia – and have wider ambitions:

CNOOC created publicity in 2005 by offering US$18.5 billion to

take over US rival Unocal, a bid that was withdrawn after fierce

US resistance to seeing strategic local assets acquired by a

Chinese SOE. Under pressure from WTO and environmental

commitments, the oil and petrochemical industries are also

undergoing large-scale restructuring, with foreign investors

encouraged to participate in exploration, large domestic

infrastructure projects and downstream activities. Foreign

companies too are eyeing up a share of China’s huge retail

petrol market. However, hard bargains are being driven.

No foreign investors have signed up for a planned long-distance

East-West oil pipeline, and drilling in the remote Tarim Basin,

China’s last onshore field with untapped reserves, has

generated little interest.

At the same time, China is seeking to make more use of

natural gas, both by tapping domestic reserves and boosting

imports, and we expect to see increasing emphasis on nuclear

and hydroelectricity over the next two decades. Renewables

are also starting to be exploited more widely in rural areas.

As well as in the primary energy sources, we anticipate the

emergence of deal opportunities in power transmission and

distribution. The government invested US$31 billion in power

generation in 2004, and a major effort is needed in parallel

upgrading of the grid to cut waste and minimize outages.

Real estate

Real estate, in 2004 the second largest home for FDI in

China after manufacturing, is currently at a crossroads. The

underpinnings remain strong: the housing market is escalating as

more of the population aspires to graduate from state-allocated

dwellings to home ownership, and demand for commercial

property of all kinds continues to expand along with the economy.

Backed by a ready supply of credit, until last year prices were

increasing sharply: average real-estate prices over the country rose

more than 14 percent in 2004 and considerably faster in cities

such as Shanghai which were the recipients of a flood of ‘hot

money’. According to the central bank one-quarter of the money

used to buy houses in Shanghai came from abroad, and more than

17 percent of housing in Beijing was bought for rental or resale.

Following a central bank warning last year of the dangers of

a property bubble, the government has since taken action to

moderate the boom, tightening credit, raising interest and

mortgage rates and imposing a sales tax on property sold within

two years of purchase. As a result, sales have slowed, prices fallen

back sharply and buyers retreated to the sidelines in anticipation

of further price falls.

However, the retreat has caused its own problems. As much as

50-60 percent of units in new developments may have been

bought by speculators, many betting on the revaluation of the

Chinese currency by taking out dollar-denominated loans from

offshore lenders. At the same time, in the rush to get buildings

up, developers have resorted to a number of dubious financing

methods, including securing large bank loans by lining up

employees and others as fake buyers, in the expectation of being

able to resell after construction began. Last year the central bank

said that ‘false mortgages’ substantially increased the risk of a

property bubble, with risks not only for developers but also

the banks, which ultimately shoulder the lending risk.

Industry Sectors continued…

21

Although in general the future for venture capital in China is

bright, challenges still abound. Sourcing deals takes time and

effort, and experienced Chinese managers are thin on the

ground. While the regulatory environment has improved

substantially, the infrastructure is immature and held back

by weak IP protection. Regulatory interference is diminishing,

but can still have unpredictable effects: a ruling by China’s

State Administration of Foreign Exchange (SAFE) last year

designed to close a tax loophole led to a temporary fall in VC

financings as it effectively made an IPO on a foreign exchange

harder to achieve. The ruling has since been reversed and deal

flow has resumed.

With confidence underpinned by vigorous growth in M&A

and IPOs, private equity is also burgeoning in the China

market as buyout houses rebalance their regional emphasis.

Notable deals in 2005 included Carlyle’s US$410 million

investment in a 25 percent stake in China Pacific Life

Insurance, one of the biggest mainland private equity

transactions to date, and the same group’s acquisition of an

85 percent share in Xugong Group Construction, a heavy

industry group, for US$375 million. In June, CVC Capital

Partners announced a US$2 billion Asian buyout fund, and

other specialists such as KKR are also reported to be raising

large amounts of fresh capital for the region. PE targets

include fast-growing companies in telecoms, media, IT and

increasingly retail. Plans by the currency regulator to lower

hurdles for foreign institutional investors seeking approval to

buy domestic stocks and possibly making it easier for private

equity investors to repatriate profits are likely to increase the

invasion, with the offsetting effect of increasing competition

for deals. Although the government is happy in principle to

see SOEs brought under the discipline of shareholder value,

it remains to be seen how free PE acquirers will be to manage

their purchases – gearing them up with debt, for example –

as they do in the more developed markets.

Venture capital and private equity

Venture capital investment in China has been increasing

sharply in recent years in both scale and scope. From

US$418 million invested in 226 companies in 2002 totals

grew to US$1.27 billion and 253 companies in 2004, making

China the fifth largest market in the world after the US, Canada,

Israel and the UK. Existing foreign and local VCs have been

joined by new entrants persuaded that a China strategy is

essential as a cycle of investment and successful exit, corporate

activity and overall economic growth takes hold. China is seen

as the only country outside the US that can support the creation

of extremely large companies in a purely domestic market,

while venture-backed IPO and M&A deals are proving that

profitable exits are possible, albeit on foreign exchanges rather

than domestic ones. 2004’s 21 venture-backed Chinese IPOs

raised US$4.3 billion and included four of the top 10 global

technology offerings, and the trend continued in 2005. IPOs

included the spectacular launch of Baidu, the Chinese search

engine firm whose stock soared a record 350 percent on

NASDAQ in August. In M&A, Yahoo’s US$1 billion

investment in Alibaba.com, an auction site, is also notable.

The bulk of venture capital in China (65 percent) is accounted

for by foreign firms, whose market share continues to rise as

new investors move in, attracted mostly to Shanghai (with a

cluster of fast-growing media, semiconductor and internet-

based firms) and Beijing (IT, software and communications).

Foreigners are increasingly establishing a China office to

pursue business development for home country portfolio

companies and/or source deals. Some foreign firms are

targeting teams of returnees from Western countries. Domestic

operators are handicapped by a regulatory framework that

holds back capital formation in-country and smaller funds –

the average foreign fund of US$200 million is seven times

larger than its local counterpart.

IN SU M M A RY


In Summary

Some of the frustrations remain: the constant need for

bureaucratic approvals, conflicting aims between different

levels of government, and the ambiguity of the legal system.

Even where central government is pressing for reform,

the strength of local vested interests can often frustrate it.

At transaction level, deals are still time consuming and

effortful to close, valuations may be hard to agree on and

joint ventures meet the barrier of Chinese reluctance to cede

control. Differentials between city and countryside and the

lack of democracy are building up political pressures that

may be difficult to manage.

Yet there are also important positives. The Chinese are natural

capitalists (even though the word is still taboo). The power

and consequences of economic growth, once unleashed,

are almost impossible to reverse – or sometimes even rein in,

although the government has so far done a reasonable job of

taking the heat out of the property boom, for example.

The abnormal dependence on relationships is diminishing.

Above all, having pinned its faith in economic growth, China

knows that to sustain the momentum its population expects

it has no alternative but to pursue sustained cross-border

investment and alliances to modernize its state-owned firms

and bring them up to world standards of efficiency and

governance. China needs foreign firms for technology and

know-how, just as foreign firms need China for growth. That

is not to say that foreigners will be allowed to take control and

walk off with all the rewards. Hard bargains will continue to

be driven. But assuming the strategic rationale for China entry

holds up, we believe the key question for most large Western

companies is no longer ‘if ’ or even ‘when’, but ‘how much’.

That is, going into China is a matter of good advice, professional

due diligence and careful negotiation. It is no longer a black

box or a leap in the dark.

Although China remains a market unlike any other, the differences and difficulties in concluding satisfactory deals areslowly dimishing. On the one hand, foreign firms and experienced advisors are getting better at navigating the challenges; on the other, WTO commitments and the need to develop lasting trading relationships with outsiders are gradually bringingmore sectors into line with business practices that are recognized in other parts of the world.

23

Following the establishment of its Hong Kong office in 1973,

Ernst & Young was one the first international professional

services firms permitted by the Chinese government to open

a representative office in Beijing in 1981.

Today, Ernst & Young is one of the leading professional

services firms in China with over 3,000 professionals in its

Hong Kong, Beijing, Guanghzhou, Shenzen, Dalian, Wuhan,

Chengdu and Macau offices. We have an extensive array of

audit, tax and transaction advisory professionals and networks

of government contacts to assist multinational companies with

PRC laws and regulations. Ernst & Young is a leader in

advising on Initial Public Offerings on the Hong Kong Stock

Exchange with many clients from mainland China.

Our team has a wealth of experience in assisting private

and public companies plan and execute inbound and outbound

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and private equity firms with:

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Ernst & Young’s multidisciplinary approach helps to ensure

that every aspect of a transaction and its impact on the

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Advisory team provides integrated services related to

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Complementing our technical capabilities, and adding a

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Global reach and international experience enables the

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With a team of over 5,200 Transaction Advisory Services

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and our strong track record have made Ernst & Young a

chosen advisor in thousands of transactions involving clients

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As part of the broader Ernst & Young professional services

organization there are 107,000 people in practices across

140 countries whose expertise can be leveraged.

Transaction Advice in China

Ernst & Young Offices in China

Shanghai

Tony TsangTel: +86 21 2405 2358 [email protected]

23/F, The Centre, 989 Chang Le Road, Shanghai, China 200031Tel: +86 21 2405 2000Fax: +86 21 5407 5507

Shenzhen21/F China Resources Building, No.5001 Shennan Dong Road, Shenzhen,China 518001Tel: +86 755 2502 8288Fax: +86 755 2502 6188

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LO C AT I O N MA P


Bob PartridgeTransaction Advisory Services Leader – China Tel: +852 2846 [email protected]

Hong Kong

Judy Tsang Tel: +852 2846 9016 [email protected]

18/F Two International Finance Centre,8 Finance Street, Central, Hong KongTel: +852 2846 9888Fax: +852 2868 4432

Guangzhou

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Chengdu

Room 1806, Zongfu Building, 35 Zongfu Road, Chengdu, China 610016Tel: +86 28 8676 2080Fax: +86 28 8676 2090

Beijing

Steve Cazalet Tel: +86 10 5815 3353 [email protected]

Level 16, Tower E3, The Towers,Oriental Plaza, No. 1 East Chang AnAve. Dong Cheng District, Beijing,China 100738Tel: +86 10 5815 3000Fax: +86 10 8518 8298

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