The Prospect of Regulatory Alignment for an Interconnected Capital Market between the United Kingdom and China: A Takeover Law Perspective

Abstract

The United Kingdom (UK) and China have launched the London–Shanghai Stock Connect Scheme to achieve an integrated capital market. In this article, the takeover market is used as an example to examine the extent to which regulatory alignment between the UK and China is possible. The focus is on the role of financial intermediaries in the two markets and how they may influence the governance model of the transfer of corporate control by an open offer to the shareholders of the target company (a takeover bid). This article argues that without regulatory alignment such an integrated market is unlikely to be realized. There are differences between the UK and China in the economic model, ownership structure, and institutional arrangements, which have been reflected in the differences in interests served by takeover law in the two regimes. The design of the framework for takeover law in the UK empowers financial market participants, so as to attract capital to the London markets. In contrast, China’s takeover law is mainly aimed at facilitating industrial restructuring and creating globally competitive national companies (national champions). Hence, the UK’s shareholder-centred takeover model, with a strong focus on financial intermediaries and international investors, would not be easily replicated in China. However, the UK model could provide lessons for China to develop its takeover market—that is, further its market structure reform, develop independent financial intermediaries, and also attract an increasing number of investors.