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The new regulations on foreign mergers and acquisitions (M&A) have officially come into effect, marking a significant shift in China’s approach to managing foreign investment. The focus is now on optimizing the structure of foreign capital inflows, particularly in key industries like large-scale equipment manufacturing. Experts from the Ministry of Commerce emphasized that the main difference compared to previous policies lies in the enhanced scrutiny of M&A projects, moving away from a heavy emphasis on investment size toward a more nuanced evaluation based on strategic conditions. This change aims to strengthen macro-level control over foreign investment and provide clearer industrial guidance, ultimately leading to a more balanced and sustainable investment structure.
The "Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors," jointly issued by the Ministry of Commerce and six other government agencies, became effective today. These rules are expected to address concerns raised by high-profile cases such as Carlyle’s acquisition of XCMG and Schaeffler’s attempt to buy a U.S. company. Recent reports indicate that the government is actively working on a draft document that would restrict foreign capital from acquiring major domestic equipment firms. This proposed list is currently under review at the National Development and Reform Commission (NDRC), with feedback from various ministries, industry associations, and companies being sought before finalization. If all goes smoothly, it could be formally introduced within the year.
According to sources from the China Machinery Industry Federation, the policy will explicitly prohibit foreign ownership of enterprises involved in the development and production of national key equipment. However, the document does not specify whether foreign investors can still participate in these firms through other means. This ambiguity has sparked discussions among industry insiders about the broader implications of the new rules.
Following the release of the regulations, several international media outlets interpreted the move as a major shift in China's investment policy, raising concerns about a potential rise in "protectionism." Some analysts questioned whether the Carlyle-XCMG deal would serve as a test case for China’s evolving stance on foreign investments and whether it would set a precedent for future transactions.
Shen Danyang, an expert from the Ministry of Commerce's research institute, argued that the new regulations will actually promote healthy M&A activities. While the rules impose stricter controls on foreign capital, they also clarify ambiguous terms such as "malicious acquisitions," which have been widely discussed in public discourse. This clarity, he said, will benefit legitimate and well-intentioned M&A deals, helping to ensure that foreign investments align with national interests.
In addition to regulatory changes, there is growing concern about how foreign companies are leveraging their influence in China’s equipment manufacturing sector. Some multinational corporations have used the promise of technology and funding to gain access to Chinese state-owned enterprises, only to eventually take full control through strategic management and technology transfer. This has led to a loss of critical assets and advanced technologies for local firms.
Zhang Guobao, deputy director of the NDRC, highlighted that the government will enhance its oversight of foreign M&A activities. Decisions will be made based on factors such as market supply and demand, productivity distribution, national economic security, and public interest, in line with existing laws and industrial policies. He further emphasized that any equity transfers involving major equipment manufacturers must receive approval from the State Council. Regarding the introduction of foreign technology, Zhang stated that the NDRC will lead efforts to establish a joint review mechanism, ensuring that all M&A activities meet strict standards and contribute positively to China’s long-term development goals.
October 04, 2025