Today, new regulations on foreign mergers and acquisitions have officially come into effect, marking a significant shift in China's approach to managing foreign investment. The primary focus of these rules is to optimize the structure of foreign capital inflows, particularly within key industries such as large-scale equipment manufacturing. Experts from the Ministry of Commerce emphasized that the most notable change compared to previous policies is the enhanced scrutiny of merger and acquisition projects, moving away from a heavy emphasis on investment scale toward a more strategic and condition-based review process. The "Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors," issued jointly by the Ministry of Commerce and six other government departments, now serve as the new framework for foreign investment. These changes have sparked discussions, especially after high-profile cases like Carlyle’s acquisition of XCMG and Schaeffler’s attempt to buy a U.S. company. Recent reports indicate that the government is considering stricter measures to reorganize and consolidate the machinery manufacturing sector, aiming to limit foreign capital from acquiring major domestic equipment firms. A draft document outlining a list of restricted acquisitions has been submitted to the National Development and Reform Commission. According to sources, if approved, it could be formally introduced this year. The China Machinery Industry Federation is expected to release specific "banned" sectors, following consultations with relevant ministries, industry associations, and enterprises. If implemented, this would mark a clear policy shift in controlling foreign ownership in critical industrial sectors. According to an official from the federation, the draft explicitly states that companies involved in national-level equipment development and production cannot be controlled by foreign capital. However, the document does not specify whether foreign investors can still participate in these firms, leaving some ambiguity in the regulation. Following the release of the regulations, many overseas media outlets interpreted the move as a major shift in China’s investment strategy, raising concerns about the rise of protectionism. Some analysts are questioning whether the Carlyle-Xugong case will become a test of China’s new investment policies and whether the country will maintain its open-door stance. Shen Danyang, a researcher at the Ministry of Commerce, believes that the regulations will help promote healthier foreign M&A activities. While the rules impose stricter controls on foreign capital, they also clarify ambiguous terms like “malicious acquisitions,” which helps distinguish between harmful and legitimate deals. This clarity, Shen argues, actually supports responsible and compliant foreign investments. Experts note that the new regulations aim to strengthen macro-control and industrial guidance, shifting from a focus on large-scale investments to more targeted and strategic approaches. This change is intended to further refine the composition of foreign investment and ensure it aligns with national economic goals. In recent years, several foreign corporations have entered China’s equipment manufacturing sector under the guise of bringing in advanced technology and capital. However, in many cases, these companies have ended up gaining control over key technologies and management, eventually leading to full foreign ownership. This trend has raised concerns about the loss of technological sovereignty, especially as multinational corporations continue to restructure and consolidate their global positions. Zhang Guobao, vice director of the National Development and Reform Commission, stated that the government will enhance the oversight of foreign M&A activities. In reviewing such projects, factors like market supply and demand, productivity distribution, national security, and public interest will be considered. He also emphasized that large-scale key equipment manufacturers must obtain approval from the State Council before transferring equity to foreign entities. Regarding the introduction of foreign technology, Zhang said the National Development and Reform Commission will lead efforts to establish a joint review mechanism for foreign M&A, along with setting up clear procedures and approval systems to ensure transparency and alignment with national interests.

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