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Chinese Adopts Buyout Rules On Foreign Investors

China published on Aug. 10 merger and acquisitions rules to permit share swaps in corporate buyouts but force foreign multinationals to jump through further bureaucratic hurdles. Overseas investors will be allowed to pay in stock, cash or a combination of both when acquiring Chinese enterprises, according to the regulations issued by the Ministry of Commerce and five other key government bodies.

"Foreign investors and stockholders can use their rights to a company's stock to purchase domestic enterprises," said the directive printed in the official China Securities Journal.
The rules, which expand on a 2003 provisional law, come amid government worries that multinational companies are cornering lucrative industries and threatening China's economic security. It said foreign corporations must now seek additional approvals from the commerce ministry and industry administration bureau when the buyer has sales volume of 1.5 billion yuan (US$190 million) or more in the Chinese market.

Also slated for regulatory review will be companies whose merger or buyout would give it more than 25% market share in a certain industry, as will corporations that already have a market share of 20%. Companies that have in the past transacted more than 10 deals in related industries in one year must also submit for a series of approvals, the report said.

More conservative government officials claim that multinational companies use unfair competition practices and because they command dominant positions through mergers, brand management and abundant capital, more must be done to protect local players.
Previous media reports have cited companies such as Coca-Cola, Kodak, HP, Nokia and Motorola as having too strong a position in the Chinese market.

However, China still lacks a national monopoly law that would take aim at its own monopolies. Western enterprises and governments have long awaited such legislation as Beijing often supports measures that aid powerful state monopolies. In June the national parliament again failed to pass the law due to the complexities involved. Draft legislation has been in the works for the past decade.

Copyright Agence France-Presse, 2006

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