Author: | Published: 1 Jul 2005
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China is no longer all about inward investment. The sheer size, strength and growth of the economy means Chinese companies are making acquisitions of their own as they look to expand internationally. John E Lange of Paul Weiss explains on page 45 how Chinese companies are taking advantage of their lower cost base to buy unprofitable lines of business from western companies and to make strategic acquisitions to bring in new technologies. Structuring these deals as joint ventures means coping with not only cross-border M&A legal issues, but also complex intellectual property agreements.

Such outward investment is necessary if China is to manage a soft landing after the unprecedented growth levels of the past decade. The Asian Development Bank says in its latest report, published on page six, that uncontrolled growth means the government must take tough measures to prevent a financial crash as overcapacity looms. Rapid growth has also strained infrastructure and created income inequality between individuals and regions. Improving legal infrastructure will help smooth China's transition towards becoming a mature economy by sustaining inward investment and reassuring those international companies already present in China.

As the Chinese market becomes more developed and inward investments in the financial and corporate sector are cemented, new rules on group finance, derivatives, taxation and securitization are evolving. These will eventually benefit market participants. Nevertheless, problems remain. In financial services, the banking market remains challenging for foreign investors due to a lack of effective competition and change is slow, despite China's WTO entry.

China's stock markets are in a muddle and the legal and operational environment is constantly in flux. "Keeping up with changes in rules and interpretations is a real challenge," Morgan Stanley counsel Hubert Lem tells IFLR (see interview, page 13).

We hope IFLR's China Guide 2005 will prove useful to those doing, or seeking to do, business in this challenging but lucrative jurisdiction.