On Foreign M & A Legal System Is Constructed

Cross-border Mergers and Acquisitions (M&A) are a global form ofabsorbing Foreign Direct Investment (FDI), and has gradually become animportant practice in accelerating Chinese economies since the late 1970s, whenthe nation relaxed its foreign trade policies. Moreover, M&A activity has steadilyincreased since China entered the World Trade Organization in 2001.Accordingly, cross-border mergers and acquisitions have grown to be a leadingforce to enhance the economic growth in China. Nevertheless, this form, due tothe nature of seizing high-interest monopoly profits, has its unfavorable influenceon the Chinese business market. Although there are laws in China to regulate thistype of investment market and behavior, the nation has not yet developed amature legal system to effectively lead and regulate cross-border M&A.Based on discussion of the controversial case of "Carlyle's acquisition ofXugong Construction Machinery", this paper, mainly composed of four parts,proposes the necessity of and approaches to constructing a cross-border M&Alegal system. In the first part, the paper defines the legal concept of cross-bordermergers and acquisitions, analyzes its innate developing patterns, and explores itslegislative conditions in China. In the second part, the paper makes comparisonand contrast analyses of cross-border mergers and acquisitions with respect totheir legislative involvements in foreign countries and in China. Particularexamples from the practices of other foreign countries are applied to the state ofaffairs in China. The third part of this paper involves a thorough investigation ofthe current overall situation of cross-border merger and acquisition legislation inChina, and based on which, expounds the necessity of constructing a completelegal system to charge this field. In the final section of this paper, a new idea isput forth on how to construct a complete legal system concerning cross-borderM&A activities in China.Fundamentally, this paper argues that in order to regulate the cross-borderM&A market, a complete legal system should be constructed which fully reflectsthe mechanisms of precaution before the event, examination during the event,and supervision after the event, in terms of the cross-border merger and acquisition transactions. Combining China's current situations in the cross-bordermergers and acquisitions legislation with foreign countries' study on this field,the paper contends that four basic laws should be included in the construction ofa cross-border M&A legal system. They are Industrial Law, Law of Cross-borderMergers & Acquisitions, Foreign-Invested Enterprise Law, and Anti-monopolyLaw. Essentially, Industrial Law focuses on the preventative measures before themerger and acquisition implementation, stipulating the merger and acquisitionscope to protect the national key industries and enterprises from being merged oracquired. Law of Cross-border Mergers & Acquisitions examines thecross-border merger and acquisition legal practices, regulating the specificprocedures of mergers and acquisitions, and determining its legitimate existenceunder all Chinese laws. Foreign-Invested Enterprise Law functions as thesupervisory force, standardizing the enterprise behaviors after the merger andacquisition completion. Anti-monopoly Law plays the roles of both examiningduring the event and supervising after the event. It not only provides legalfoundation for the Law of Cross-border Mergers & Acquisitions in itsexamination of whether the merger and acquisition forms industrial monopoly, italso furnishes the legal foundation for opposing the foreign-invested enterprisesto exercise industrial monopoly behaviors.In this paper, the author holds that the four basic laws, complementary witheach other, can be integrated to make a thorough regulation of a cross-bordermerger and acquisition activity in its whole process, forming into a completecross-border merger and acquisition legal system. The manifestation of thissystem will have a great practical significance for China-it will effectivelyavoid or reduce the negative impact of cross-border mergers and acquisitions,and China will benefit from their favorable applications and be able to realizeindustrial advancement.