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Restricting Foreign M&A to Protect National Interests

Regulation aimed at foreign purchases of Chinese companies were recently drafted by the Ministry of Commerce, and have been causing a bit of a stir since their release on 30 June. Caijing magazine reports on the thinking behind the new rules:

Other deals facing political scrutiny include:

In all these cases the underlying concern is that foreign companies will take control of strategic sectors or leading companies. This is a point well made in the All Roads Lead to China [2]blog (h/t to China Law Blog [3]), which makes the following comment on Carlyle’s bid for Xugong:

Under the badge of “anti-trust” the new rules seek to restrict this threatening, top-end foreign M&A activity [4]and increase the approvals burden (see more on the Anti-Monopoly Law here [5]). The rules (which take effect from 8 September) specifically require declarations regarding deals that involve:

As Caijing points out, this covers most likely M&A deals, and is much broader than earlier requirement for approvals of projects over US$30 million in value. The rules also leave a lot to “interpretation” by the Ministry of Commerce.

While hostility to foreign investment is far from universal [6], it is clear that foreign investors should be increasingly sensitive to the direction of the political wind, and should be aware that any significant deal involving leading, or strategically important, Chinese companies is likely to attract an unwelcome degree of scrutiny by the government.

See news sources: