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Patrick M. Norton and Howard Chao | September - October 2001 Issue:

Cover by Greg Berger Design, Inc
Cover Photo by Gregory S.Heslin Patrick M. Norton and Howard Chao are partners at O'Melveny & Myers LLP, in Shanghai. |

China's M&A laws allow foreign investors to restructure investments and expand their market presence
Local "equity exchange centers" have been established in Beijing, Shanghai, and in Shenzhen, Guangdong Province, in some cases for specialized, high-technology deals. These centers are to serve both as sources of information on available deals and as expediters for the government approval processes. The new merger options will facilitate intracorporate restructuring. Foreign investors wishing to consolidate their Chinese investments onshore--for internal reasons or perhaps to reflect offshore developments such as a merger of parent corporations--can now do so by merging their existing FIEs. It is virtually impossible to effect a simultaneous closing of a Chinese M&A deal. Various escrow and letter-of-credit arrangements are sometimes used to bridge the gap, but the laws governing these arrangements are not well developed in China.

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Gone are the days when foreign companies wishing to invest in China were limited to greenfield investments. They may now purchase operating Chinese businesses and may restructure their existing investments in China through mergers, spin-offs, and holding companies that were impossible only a few years ago. These developments are not confined to foreign investors. Domestic Chinese companies are also merging and acquiring one another, and the more successful among them have begun to buy out foreign investors. The result of all of these developments is a rapidly expanding mergers-and-acquisitions (M&A) market in China.

China's regulatory