Aug 01, 2012 02:26 PM

Red Tape Retreat


(Beijing) – Private companies in China hungry for overseas buyouts have been salivating over foreign corporations whose market values have plunged in recent months as a consequence of the weak global economy.
But Chinese government regulators have been standing between many of these companies and the dinner table, investment and legal experts say. Buyout opportunities have even been lost, they say, due to bureaucratic foot-dragging and regulatory limits on bank lending for overseas deals.

In some cases, the stock price of a target company has risen and pushed the cost of a proposed acquisition higher during the weeks or months that it takes for government agencies to approve a deal. Other company plans have been frustrated by more flexible foreign rivals that snap up blocks of shares in a targeted corporation, thwarting the Chinese buyout effort even while bureaucrats are still processing paperwork.

The government has tried to overcome at least some of these roadblocks to overseas buyouts. In June, a group of central government agencies released new guidelines designed to encourage private investment abroad by relaxing some of the most onerous restrictions.

Working out the details were officials from 13 agencies, including the National Development and Reform Commission (NDRC), Ministry of Finance and State Administration of Foreign Exchange (SAFE).

The guidelines raised hopes among entrepreneurs, investment bankers and lawyers nationwide. Still, many think government agencies – if they're truly serious about promoting overseas investment by private companies – should do more to clear away red tape.

"The guidelines are very complete," said Zhao Bin, founding partner of Shanghai law office HHP Attorneys-at-Law. "They cover all the problems encountered by private enterprises investing overseas.

"But they only provide some innovative direction and do not put in place supporting measures or provisions in detail."

Less Control

Overseas expansions for private companies used to mean greenfield investments and joint ventures. Now, according to recent research by consulting firm Towers Watson and the Ministry of Commerce's Economic and Trade Statistical Society, the trend is for them to seek mergers and acquisitions with established, foreign concerns listed on overseas stock markets.

M&As give Chinese buyers more control over target companies, the researchers found, and spare them the need for massive work preparing start-ups.

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