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China Matters: Practical Considerations for Acquisitions in China (2008)

Despite the global financial crisis and the resulting decline in worldwide M&A volume, China is one of the remaining bright spots for deal makers and their advisors. Recent major acquisitions in China include Coca Colas US$2.4 billion proposed acquisition of Huiyuan Juice and the closing of Blackstones US$600 million investment in the BlueStar Group. However, despite such interest from buyers, hurdles in Chinas regulatory regime is one factor for Chinas relatively low M&A volume compared to that of the United States and Europe.

For example, the ability of Chinese citizens to use offshore (i.e., outside China) holding companies to hold their businesses in China, and, therefore, the ability of foreign buyers to indirectly acquire Chinese businesses by acquiring offshore holding companies, has become severely restricted since late 2006. More recently, the Chinese government stepped up its scrutiny over acquisitions by unifying its anti-monopoly laws and adopting new rules such as the concentration notification rules. Other regulatory hurdles in China include the promulgation of a new investment catalogue in which foreign acquisitions in certain industries became more restricted and the passage of new foreign exchange regulations that restrict the ability to use converted currency for acquisitions.

In this newsletter, we discuss some of the salient issues that foreign buyers face when structuring an acquisition in China. This newsletter is not meant to be comprehensive and we suggest that you contact your Paul Hastings attorney before you proceed with an acquisition in China.

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