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The Ministry of Foreign Trade and Economic
Co-operation (MOFTEC) is drafting a rule on the entry of foreign
companies in mergers and acquisitions, a major form of transnational
investment, an official said yesterday.
MOFTEC is inviting advice on the draft
from accounting and law firms and will present it as soon as possible,
said the official with the ministry's Department of Foreign Investment
Administration.
Beijing-based International Finance News reported the new rule could
come out as early as the end of this year but the unnamed MOFTEC
official declined to confirm the date.
The new rule - together with the recently published temporary rule on
foreign investment used to transform State enterprises, a notice on the
transfer of listed companies' State shares and individual shares to
foreign-funded companies, and a rule on qualified foreign institutional
investors - will lay down the legal framework for foreign mergers and
acquisitions, said a senior lawyer with a Beijing-based foreign law
firm.
But the lawyer, who declined to be named, said the draft of the new rule
contradicts existing rules on whether companies are entitled to the
government's preferential taxation and other policies that are granted
to foreign-funded companies after mergers and acquisitions. The rules
also differ on how transactions should be priced.
The MOFTEC official would not comment on this issue, saying they will
consult with other ministries and commissions before publishing the new
rule.
The new rule was introduced in hopes of facilitating and attracting more
foreign investment into capital-thirsty China.
An annual report on transnational investment issued by the United
Nations Conference on Trade and Development in 2001 showed 80 per cent
of the world's transnational investment was made through mergers and
acquisitions in 2000.
Although the volume halved in 2001, mergers and acquisitions are
believed to be the dominant form of transnational investment.
In order to ensure sustained growth in foreign capital inflow, MOFTEC
rushed to work on laws and rules paving the way for foreign mergers and
acquisitions.
Chinese officials also hope foreign mergers and acquisitions will help
inject vitality into State enterprises and lacklustre stock markets.
(China Daily)
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