The deal between GM and Tengzhong over Hummer seems to be moving along, but every time someone talks about the transaction, you also get a press story about government approvals, or the lack thereof.

Just today, China Daily had this:

China’s Ministry of Commerce said Tuesday it has not received an application from Sichuan Tengzhong Heavy Industrial Machinery Co over their Hummer deal.

Ministry spokesman Yao Jian made the remarks at a press conference responding to media reports.

The MOC has had to respond to this same question several times now. They’re probably getting rather frustrated. On the other hand, I originally assumed that MOC was the main approval authority on a deal like this as well. My earlier post(s) on this topic said as much, I believe.

Wrong. Wrong. Wrong.

Here’s a hint from the same China Daily article, although it doesn’t exactly clear up the issue:

As far as he knew, Yao said, an application from Sichuan was submitted to “another” central government department, but not the Ministry of Commerce.

Sources with the National Development and Reform Commission (NDRC) told Xinhua on Aug 24 it was beyond their job scope to ratify Tengzhong’s Hummer deal as the application said Tengzhong only planned to purchase Hummer’s brand instead of assets or shares.

It should belong to service trade and thus was beyond the NDRC’s job scope, the sources said.

The NDRC had replied to the Sichuan Development and Reform Commission about Tengzhong’s Hummer deal, the sources said.

OK. From my (updated) understanding, the NDRC would be the primary authority in charge of a “normal” sort of outward investment deal. A few possibilities based on the amount of money involved: 1) approval from NDRC; approval from NDRC with notification to State Council; or 3) approval from provincial level NDRC.

So the guy from MOC was saying, “Hey, don’t look at us. We’re not in charge of that.” Sounds right. He also pointed to another “central government department,” but that doesn’t tell us much. The article I read was in English (a Chinese version would probably have told me at least if the department in question was an “Agency” like the MOC or a department directly under the State Council – different terms in Chinese).

Since NDRC told Xinhua that they were not responsible based on the type of deal, I’m thinking it was indeed the NDRC that Tengzhong first talked to (apparently provincial level, which then consulted with the State-level NDRC). Apparently NDRC, if you will pardon the American football reference, has punted.

Moreover, from what I understand, Tengzhong is neither a listed company nor a State-owned Enterprise, so I’m thinking neither CSRC (securities regulator) nor SASAC (State-owned enterprises and assets) would be in the picture. So how to approach this deal?

Here’s the problem. I haven’t heard specifics on this deal so far. All I get so far is that Tengzhong wants to buy the “brand” of Hummer, which may or may not include additional IP. I’m thinking designs or patents, and one would think some kind of know-how/trade secrets. Apparently facilities and equipment are not part of the deal.

So this is not your classic acquisition. If GM is transferring Hummer’s global IP portfolio to Tengzhong, though, then it is more than just your typical China-IP assignment to a Chinese manufacturer.

What do we call something like this with respect to Chinese outward investment regulation? I have no freakin’ idea.

Somewhere along the line, Tengzhong is going to have to pay GM for this IP. In order to get that money offshore, they will need the approval of the foreign exchange authorities (i.e. SAFE). Before SAFE approves the forex, I would assume that they will require Tengzhong to obtain approval from the appropriate government authority.

If no one from the government wants to take responsibility for this deal, then this could be interesting. I can’t wait to see what will happen next. Either way, don’t worry about the confusing press accounts. No one seems to know what’s going on.

By the way, this is all quite murky, and the above is idle speculation on my part. If anyone has additional information on who might be in charge, feel free to comment or drop me an email. Inquiring minds wish to know.

UPDATE: Apparently a formal agreement was signed last Friday in Detroit, pending US and China government approvals.

Strangely, according to some accounts, the deal would include several thousand GM employees, who would remain in the US, but not core Hummer technology, which might only be licensed from GM. Vehicle assembly would remain in the US for the time being.

Bizarre.

This entry was posted on Tuesday, November 17th, 2009 at 10:24 pm and is filed under China Business & Economy, China Law. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.