China's New Foreign-funded M&A Provisions: Greater Legal Protection or Legalized Protectionism?

China's latest merger and acquisition (M&A) rules have already generated much concern among foreign investors desiring to acquire Domestic Companies. The regulations come at a time when several high profile and controversial M&A deals hang in the balance. Will the new rules create new obstacles for foreign-funded M&As or will they provide better procedures for acquiring domestic enterprises?

By Peter A. Neumann and Tony Zhang*, Faegre & Benson, Shanghai

During the past 12 months until June 30 2006, over 250 Chinese enterprises worth more than US$14 billion have been acquired by foreign purchasers.¹ China's regulatory structure for foreign-funded mergers and acquisitions (M&A) is struggling to keep up with the emerging market for cross-border corporate control. The Provisions on Acquisitions of Domestic Enterprises by Foreign Investors (New Provisions) issued by six central government authorities² on August 8 2006 became effective on September 8, replacing the Tentative Provisions on Acquisitions of Domestic Enterprises by Foreign Investors ³ (Tentative Provisions), which have been in force since April 12 2003.