China sets tough rules for foreign investors

Proshare

August 11, 2006/busrep

 

 

 

Shanghai - China has published merger and acquisitions rules to permit share swaps in corporate buyouts, but force multinationals to jump through further bureaucratic hurdles.


Overseas investors would be allowed to pay in stock, cash or a combination of both when acquiring Chinese enterprises, according to the regulations issued yesterday by the ministry of commerce and five other key government bodies.


\"Foreign investors … can use their rights to a company\'s stock to purchase domestic enterprises,\" said the directive printed in the official China Securities Journal.


The rules, which expand on a 2003 provisional law, come amid government worries that multinational companies are outmuscling their Chinese rivals, cornering lucrative industries and threatening China\'s economic security.

Foreign corporations must now seek additional approvals when the buyer has sales volume of 1.5 billion yuan (R1.3 million) or more in the Chinese market.

Also expected for regulatory review will be companies whose merger or buyout would give them more than 25 percent market share in a certain industry, as will corporations that already have a market share of 20 percent. Companies that had in the past transacted more than 10 deals in related industries in one year must submit for a series of approvals, said the report.

Government officials claim that multinational companies use unfair competition practices and more must be done to protect local players.

However, China still lacks a monopoly law that would take aim at its own monopolies. Western enterprises and governments have long awaited such legislation as Beijing often supports measures that aid powerful state monopolies.

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