Legal Review On Merger And Acquisition Of Domestic Enterprises' Assets By Foreign Investors In The Form Of Joint Venture

This thesis concludes that the there is a loophole in the examination rules for asset acquisition of domestic enterprises by foreign investors, which is established in the current Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors. Such examination rules for asset acquisition of domestic enterprises by foreign investors fail to cover a kind of special asset transactions which are disguised in the form of joint venture. Under the current Chinese law, such asset transactions are governed only by the Sino-foreign Equity Joint Venture Law. In connection with the foreign direct investment in the form of an asset acquisition, the compliance requirements are much broader and the examination rules are much stricter in the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors, than those applied to Greenfield foreign direct investment in the Sino-foreign Equity Joint Venture Law. This leads to a possible situation, under which foreign investors circumvent the strict examination process applied to the asset acquisition in the form of a joint venture.This thesis concludes that it is necessary to reconsider the current legislations on asset acquisition by foreign investors. The current legislations regulate asset acquisitions on the basis of the transactional structures of the asset acquisitions. As long as an asset acquisition fails into one of the transactional structures stipulated in the law, it will be subject to the legislations regarding asset acquisition. The disadvantages of such legislative mode under which the jurisdiction of the relevant legislations is established on the basis of transactional structures are that the parties to the transaction may circumvent the merger and acquisition review of foreign investors by changing the transactional structure, which is possible since the examination requirements applied to the Greenfield foreign direct investment and the cross-boarder merger and acquisition are different.In order to solve this problem, this thesis concludes that it is worthwhile introducing the EU merger control rules under which a merger and acquisition transaction is defined by two ways, i.e. by the transactional structures and the substantial effect of the transaction. The actual effect of a merger and acquisition transaction is a change of control on a lasting basis. The current legislation on foreign-related mergers and acquisitions should pay more attention to analyze the substantial effect and should not regulate the transactions according to the stipulated transactional structures. It is recommended that the current legislation on foreign-related mergers and acquisitions should be revised on the basis of the standard"change of control on a lasting basis". Regardless of any forms of asset transactions, they shall be subject to the legal review applied to foreign-related mergers and acquisitions if the control over the assets operated by domestic enterprises is transferred from domestic enterprises to foreign investors on a lasting basis or the sole control originally held by the domestic enterprises is transformed into a joint control of domestic enterprises and foreign investors. If no control over the assets operated by domestic enterprises is not changed after the transaction is close, such transaction shall not constitute a merger and acquisition and, thus, it is not necessary to conduct the legal review.