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China's New M&A Regulation and Its Impacts on Foreign Business

By Wenzhao (Connie) Wang
October 03, 2006

On Aug. 8, 2006, China released a new rule of 'Provisions on Acquisition of Domestic Enterprises By Foreign Investors' (New Regulation), with the joint efforts of six People's Republic of China (PRC) regulatory authorities including the Ministry of Commerce (MOFCOM), the State-owned Assets Supervision and Administration Commission (SASAC), the State Administration of Taxation (SAT), the State Administration for Industry and Commerce (SAIC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE). The New Regulation took effect on Sept. 8, 2006, and invalidated the 'Interim Provisions on Acquisition of Domestic Enterprises By Foreign Investors' (Old Regulation) issued on March 7, 2003. The New Regulation has drawn speculations that China is changing its policy toward foreign investors' acquisitions of its domestic companies and tightening its restrictions on foreign investments.

This article presents the background that gave rise to this new regulatory scheme and provides a comparative analysis of the two regulations, with a particular focus on how foreign companies doing business in China will be impacted.

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