Newsletter
INTERIM REGULATIONS ON M&A BY FOREIGN INVESTOR ANNOUNCED
On 17 March 2003 the PRC Ministry of Foreign Trade and Economic Cooperation (now renamed the Ministry of Commerce), the State Taxation Administration, the State Administration for Industry and Commerce, and the State Admini-stration of Foreign Exchange jointly issued the Interim Regulations on Mergers & Acquisitions of Enterprises Within Chinese Territory by For-eign Investors, which came into force on 12 April 2003. The regulations will make the PRC legal system more complete with regard to for-eign investors' M&A activities in PRC.
Scope of application
The regulations divide acquisitions by foreign investors into two categories: acquisition by purchase of shares, and acquisition by purchase of assets. Acquisition by purchase of shares means that a foreign investor negotiates to buy shareholdings in a domestic company, or sub-scribes to shares issued by a domestic company in respect of an increase in its capital, so that the domestic company is changed to a for-eign-invested enterprise. Acquisition by pur-chase of assets means that a foreign investor sets up a foreign-invested enterprise, through which it then negotiates to purchase and operate the assets of a domestic enterprise; or a foreign in-vestor negotiates to purchase the assets of a do-mestic enterprise, and then sets up a for-eign-invested enterprise to operate the assets.
Approval and registration of acquisitions
Under the regulations, a foreign investor's ac-quisition of a domestic enterprise, and its in-corporation of a foreign-invested enterprise, re-quire the approval of the reviewing authorities, and a change in incorporation status must be registered with the competent authorities. The regulations also provide that the foreign inves-tor's contribution of capital to the for-eign-invested enterprise as incorporated after the acquisition should normally not be less than 25% of the enterprise's registered capital unless with a special permission. This demonstrates the PRC's flexible policy toward acquisitions by foreign investors. The reviewing authority is required to approve or reject an application within 30 days after receiving all of the required documents.
Foreign acquisitions and anti-trust laws
The PRC is currently in the process of enacting anti-trust legislation, which will include a com-prehensive review system. But the regulations already include provisions for the anti-trust re-view of acquisitions of domestic enterprises by foreign investors. These provisions mainly in-clude requirements for the reporting to and re-view by the relevant authorities of major acqui-sitions in the PRC by foreign investors, reporting and review of major acquisitions outside the PRC by foreign investors which affect the PRC's domestic markets and economic order, and a system for exemptions from anti-trust controls.