PRC Strives to Control Foreign Mergers and Acquisitions

He also added that when it comes to evaluating foreign M&A deals, the first factor to consider would be whether the domestic firms were fairly priced and second would be whether the deal would lead to company asset growth.

As the stock market is continuously surging in the PRC, more foreign firms choose M&A as a way to allow them to invest and enter into the Chinese market. The heating up of foreign mergers and acquisitions raises concerns over issues on the loss of state-owned assets and low prices paid by foreigners in their takeover, prompting the government to set up regulations.

Guangdong, Jiangsu, Fujian, Shanghai, and Shandong are provinces that foreign corporations find most attractive. "These parts of China are mainly targeted because of ... the market size, the market access, themarket openness, the efficiency of the government administration and the familiarization of the market," said Stéphane Vernay, partner of Gide Loyrette Nouel, Beijing.

It will be the third time for the government to take action to control mergers and acquisitions, a demonstration that PRC is determined to strengthen supervision over foreign mergers and acquisition deals. The Ministry of Commerce first drafted regulations on mergers and acquisitions in 2004. However, Sun Xiaohua, an expert with the Ministry of Commerce, said M&A in some sectors could jeopardize China's industrial and economic integrity, but the first draft failed to address that even though it created a good framework, according to Xinhua news agency. In 2006, the PRC announced new M&A regulations, which reviewed the competition aspects of foreign mergers and acquisitions and also focused on intellectual property consequences for foreign investors. The new regulations next year should grant more protection and fairness to the PRC's industrial security and market under the growing merger and acquisition deals.

Yet foreign investors might need to some time to adapt to the new regulations. "While foreign investors have invested massively over the past 15 years, mainly with a view to acquire low-cost manufacturing capacity for the export market, it is likely that foreign investors will now have to adapt their investment strategy with the new Chinese economical context and the new policies that have been introduced by central authorities over the last two years," said Vernay.