A Study On Foreign M&A Policy In China’s Water Supply Industry

Since join the WTO, reform of water authority system in China proceeded in an all-round way. Many state-owned water firms began to partial equity transfer, non-public capital are allowed to invest in water supply industry, Including private capital and foreign capital. Under this Macro-economic Situation, foreign-founded companies speed up the process of merger for strategy. Many questions exploded such as foreign companies making a profit while domestic companies at a loss, and foreign companies manipulating water price. Water supply industry is one of the core and basic industries, its healthy development related to national interest and people’s livelihood. And many other industries’development is also influenced by water supply industry. Therefore, we must immediately propose a solution for the contradictions between foreign-founded companies and China’s water supply industry.Based on this background, this paper does some researches of M&A policy in water supply industry guided by the economic theory of regulation. This paper tries to make up the lack of M&A regulation policy in water supply industry and improve the disorder regulate situation when foreign-founded companies merger China’s water company. Eliminate the negative effects produced by governments’blind and short-sighted actions, and pretended our economy from falling into this situation again. The most important is making some suggestions as references in future water supply industry merger review issues. Except the introduction, this paper composed by four chapters:The second chapter summarizes some related literatures and discuss their help and shortages under this paper’background. Includes reviews some important literatures about foreign M&A regulates theory for finding support to theory in this paper. And summarizes some literatures about economic welfare analysis of foreign M&A, and discuss the necessity of building a new model for analyzing foreign M&A in China’s water supply industry. This paper also analysis foreign M&A review systems in some countries and some pertinent literatures. Try to find shortages in these literatures and do my research on the basis of existing achievements.The third chapter discusses the current situation of foreign M&A in China’s water supply industry, and analyzes positive effects on China’s water supply industry affected by foreign capital. Then, analysis negative effects by three parts:M&A behaviors, M&A strategies and the influence of water price. So we draw the conclusion that it is necessary to regulate the foreign M&A and the parts we should pay attention to when making regulate policy.The fourth chapter analyzes what assumptions suit to foreign M&A welfare analysis in China’s water supply industry. Then build models in two situations:when market structure is complete monopoly and is oligopoly. By deducing these models, this paper gives some suggestions.The fifth chapter gives suggestions on foreign M&A regulation system from legal level to administrate level, then to the firm level. At last, propose to build an efficient industry security warning system at industry level.This paper may be innovative in the following areas:First, this paper discusses the negative effect on China’s water supply industry caused by foreign capital. Existing literatures mostly do their researches on general industries or other industries. Some researches on water supply industry focus on positive effect. This paper focuses the foreign M&A activities in water supply industry, and do research about the negative effects caused by in three main parts:M&A behaviors, M&A strategies and the influence of water price.Second, this paper builds a foreign M&A welfare model of water supply industry. Existing literatures separately suit to specific situations which different from China’s water supply industry. This paper discusses what preconditions should be made and then build models in market structure of complete monopoly and of oligopoly. Some policy suggestions are proposed while deducing these models. For example:how to use foreign companies’technological advantage when under the policy goal of water price and water supply; and how to constraint the bid price when under the policy goal of increasing the social welfare.Third, this paper proposes and demonstrates the policies of completing the foreign M&A regulate system of water supply industry. Including modify and complete the foreign M&A laws and regulations, some suggestions of building a foreign M&A regulatory mechanism, investigating the qualification of foreign companies. At last, this paper makes suggestions of building the industry security warning system of water supply industry.