Two Faces for Foreign M&A

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Mergers and Acquisitions (M&A) by foreign companies in China – which reached US$12.8 billion in the first half of this year, according to China Economic Review (via China Challenges) – may receive a policy boost, according to a recent report in China Daily. This is despite ongoing concerns in some quarters about “malicious foreign investors” taking control of Chinese industries, and as the government is preparing to introduce an Anti Monopoly Law – thought to be in part a way of protecting domestic industry (see more here: Draft Anti-Monopoly Law Approved).

But it seems that some M&A deals are more equal than others. The report also notes that “Hong Kong’s Wen Wei Po newspaper reported earlier this month that China would tighten screening of and impose new curbs on foreign acquisitions of heavy industry firms”. This seems to be in line with Carlyle’s problems in its bid for a controlling stake in Xugong Group Construction Machinery Co. – it has still not received government approval from the US$375 million deal. Morgan Stanley may face similar pressures in its bid for DHI-DCW, another big heavy equipment maker.

In brighter news for the foreign camp, UBS recently received (after a long wait) regulatory approval for its ground-breaking, US$200 million investment for 20 percent of Beijing Securities, plus management control.

There is likely to be continuing sensitivity relating to big M&A deals, especially in strategic sectors such as steel and financial services. Recent reports also indicate that big foreign retailers will face more barriers to expansion if new planning rules are introduced.

It is always worth remembering that China’s unique “socialist market economy” brings government deep into the business world – and that that policies can change direction quickly when economic, political, or protectionist pressures are brought to bear in Beijing. Policy analysis is therefore a critical business tool when seeking to manage risk, or to gain competitive advantage.

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