This content is from: Local Insights

China

Since the enactment of The Provisional Regulations on Foreign-Funded Mergers and Acquisitions of Onshore Enterprises on April 12 2003, the restrictions on foreign investors who wish to acquire a company or the assets of a company that is wholly-owned by the People's Republic of China (PRC) have been relaxed.

As provided in the Regulations, a foreign investor may acquire a PRC company in two ways: they can acquire existing shares or be allotted newly issued shares by the target company; or the foreign investor can acquire the assets held in the name of the target company. By adopting the latter approach, the foreign investor will not assume the liabilities of the target company or any claims against it or rights held by it.

Despite this big step forward, the governance of foreign investment has not completely relaxed as certain rules remain in force. Certain critical businesses, which are identified in foreign trade related regulations, must be co-owned by a Chinese party and be approved by the regulating bureau. In the case of an acquisition of assets, the foreign investor must go through a process of appraisal and the transaction value must not be substantially lower than that valued by an official appraisal report.

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