M&A of Chinese Enterprise by the Foreign Investor
  • The foreign investors can invest in China by merging and acquiring a Chinese enterprise in any of the following forms:

    1. the foreign investors, by agreement, purchase the equity interest from shareholders of Chinese enterprise with no foreign investment (Domestic Company) or subscribe to the capitalization to be raised of the Domestic Company with the result that this Domestic Company will be changed into a foreign investment enterprise (Equities M&A);

    2. The foreign investors set up a foreign-invested enterprise in China and then, through this enterprise, purchase the assets of a Domestic Company by signing an agreement and then operate such assets;

    3. The foreign investors directly purchase the assets of Domestic Company and use such assets to set up a foreign-invested enterprise and operate these assets.

    To merge and acquire the Chinese enterprise is a very important means for foreign investors to invest in China. Compared with setting up a new FIE, to merge and acquire the Chinese enterprises can get the foreign
    investors’ China business reach a certain scale without starting the business from the beginning, and obtain market shares and brand recognition to a certain extent, which is the very advantage of merger and acquisition.

    No matter what means the foreign investors will adopt to merge and acquire the Chinese enterprises, a FIE (Foreign Investment Enterprise) will be established finally. The FIEs to be incorporated resulting from the foreign investor’s M&A of Chinese enterprise are the same as the above-mentioned several kinds of FIEs to be incorporated newly, except different procedures of incorporation. 

    In fact, the foreign investors can merge and acquire the existing FIEs in China, also can merge and acquire the Chinese enterprises by the existing FIEs in China. The above two ways are different in terms of the application according to laws and regulations, but the business operation is not quite different.