Even if the purchasing does not meet the above-mentioned conditions, the article also stipulates that the Ministry of Foreign Trade and Economic Cooperation or the State Administration of Industry and Commerce, upon a request from rival enterprises, relevant function departments or industry associates inside China, could also require a report if the buying leverages market competition; involves a bulk of market share or affects the national economy and people’s livelihood; national economic security.

The former CEO John F.Welch Jr. of the GE giant planned to acquire Honeywell before his retirement. The plan was approved by the US government but finally turned down by the European Union. The Chinese government today possesses legitimate veto rights in international buying. Professor Ji Ligang of the prestigious Shanghai-based Fudan University thinks that the Provisional Regulation use foreign laws for reference and confirms, to some extent, the jurisdiction legitimacy of China’s M&A legislation outside China.

Because the Provisional Regulation also stipulates some exceptional terms, whether the regulation automatically applies to the Fortune 500 enterprises is not yet known. According to statistics from MOFTEC, 262 foreign-funded enterprises made a sale with revenue of over 1.5 billion yuan (US$181 million) in China in the fiscal year 2001 to 2002. Lots of often-heard names are on the list: Volkswagon, Nokia, Erisson, Dell, Cannon, P&G, Phillips, Lucent. And the list goes on.

Foreign media have begun to worry that the Chinese government will make use of the Provisional Regulation to ward off foreign capital and encourage domestic capital in a M&A market.

Zhang Jiachun, a lawyer in the Beijing Kangda Lawyer Office puts forward the view that the media place so much attention on the issue that he doubts this is a kind of over-heated promotion. After the Provisional Regulation was promulgated, lots of foreign corporations consulted his office for relevant information but none of them show signs of decreasing their investment in China. The Financial and Economic Times confirms through interviews with some Japanese business organizations in China including Japan External Trade Organization that they have received no request to follow up the regulation since promulgation.

“Admittedly, some projects will be affected. But I think relevant departments will grant them immunity according to the exception terms. Therefore, the Provisional Regulation will not have negative influences on China’s efforts to attract foreign investment and foreign corporations’ business operations,” said Lawyer Zhang.

But in the perspective of the law in practice, Zhang thinks some technical problems may emerge in its enforcement.

The most practical problem is whether international giants will even consider the Chinese government’s attitude. Take GE’s attempt to buy Honeywell as an example, the European Union wields a veto right as Honeywell’s sales volume in EU areas accounts for more than 50 percent of its total and so is GE. They have to therefore take the attitude of the EU into consideration. But international giants’ sales ratio in the Chinese market usually accounts for a small part of its total, some even less than 5 percent. “I can bet that no international giants will invite a Chinese lawyer to an M&A meeting,” said Zhang.

The Provisional Regulation also deals with the legal jurisdiction issue, according to Zhang. No international corporations have registered in China as independent entities. They don’t have to get approval for their operation according to Corporation Law.

It would be hard technically to deal with corporations if some irregularities against the Provisional Regulation were found. “Should it be split or a mandatory shut down? Either alternative will be a tough job, technically,” said Zhang.

A number of overseas media play up the promulgation of the Provisional Regulation as the antitrust law in the pipeline. Minister of Commerce Lu Fuyuan said recently at the Development Forum that relevant departments are drafting legislation such as the antimonopoly law in order to dispel local protectionism and monopoly.

Overseas media generally regard the Provisional Regulation as the rudiment of an anti-monopoly culture as well as a catalyst to accelerate its legislation and enforcement.

Professor Ji Ligang thinks so too. Even if the M&A is outside of China, the buying will inevitable affect China’s market, provided the buyer or seller possesses assets, has affiliated enterprises or merchandises its products in Chinese territory. The Provisional Regulation’s jurisdiction terms demonstrate the depth of China’s legislation on international M&A, according to Ji.

Director Lu Jinyong of the International Direct Investment Research Center under the University of International Business and Economics, has his own view from another perspective. The Provisional Regulation intends to promote foreign capital into China. The government has a clear understanding of the contribution made by foreign investment to its economic development. While China sees around US$30 billion foreign capital in 2002, 85 percent of the fund was direct investment and the rest was used for M&A. Such a small percentage obviously can’t meet China’s expectations to restructure domestic industries with the help of foreign capital.

Lu Jinyong thinks that the provision of Article 19 doesn’t mean to impose stricter control on foreign capital’s access into China.

The government has been imposing some access restrictions on foreign capital, mainly on the stock proportion of joint ventures and industry investment access, according to the List on Foreign Investment’s Guide, Lu maintains. While China relaxes control on stock proportion and furthers it’s opening-up, it is reasonable for it to enhance control on industry investment access.

Lu Jinyong apparently retorts the saying that “Provisional Regulation is a rudiment of the Antitrust Law”. “The Antitrust Law aims to maintain the security of China’s economic system, the same as relative to antitrust laws in other countries. So the antitrust law has a definite difference in legislative purposes. The Antitrust Law governs all social economic entities not just exclusively to foreign enterprises,” said Lu.

China’s academia has been calling long for an antitrust law. But some departments hold pessimistic or even negative attitudes to such a kind of law given full consideration of their vested interests. Lu believes that in a country that is undergoing economic transition, the legislation of an antitrust law must shed light on industry monopolies, instead of simply replicating the behavior of the West. For example, drafting the Antitrust Law probably gives a clear definition of legitimate applicability to industries involving national economic security.

But he also calls attention to the term “provisional”, which means the government reserves the right to revise or amend certain terms in its enforcement.

Zhang Jiachun who focuses on the process of operation holds a more radical view. He believes China will need an antitrust law to ensure its economic security in the future, but not for now. Moreover, the antitrust law aims to regulate the whole economy not just some industries.

At the annual conference of the Chinese People’s Political Consultative Conference held in March, China’s top advisory body, Zhang Hongwei, chairman of the East Group, led a proposal to mandate China’s retailing industry. Zhang believed that foreign-funded joint ventures are encroaching on the domestic retail sector. Since the sector concerns the lifeline of the national economy, he wonders, “Who should control the lifeline of China’s economy?”

The problem pressing China is the small scale of its domestic enterprises, according to Zhang. A lot of experts commonly think domestic enterprises should form, for example, an “aircraft carrier” to enhance the general competitive edge. When the antitrust law was promulgated, foreign investment could charge domestic competition with “unequal (competition)”, warned Zhang.

(China.org.cn by Alex Xu May 9, 2003)