What are the merger and acquisition options for a foreign company hoping to enter the Chinese market?
M&A is a key component of the new wave of foreign investments flowing into China recently. There are two essential choices for foreign companies interested in M&A with domestic companies: direct and indirect M&A. Unfortunately, there are no definitive or clear guidelines as to what constitutes direct M&A, however, there are 3 situations in which it can be found: 1) State-owned Enterprises (SOEs) using foreign investment in asset restructuring. It is common practice for SOEs to use this type of direct investment to pay liabilities and create working capital. The legal basis for this can be found in the “Provisional Rules on Utilizing Foreign Investment in Asset Restructuring of SOEs” (State Economic and Trade Commission (SETC), 1998) 2) Acquisition of small SOEs. The advantage of this situation is that companies who encounter difficulties getting licenses, may acquire a small SOE, thus eliminating the barriers and making it much easier to get a license. However, there are disadvantages
