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The "Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors" (referred to as the "Regulations") came into effect on September 8th, causing significant concern within China's manufacturing sector, which has long served as a major hub for foreign capital. The regulations have sparked widespread discussion among industry players and experts. While administrative and legal interventions in foreign M&A activities are common globally, many in the industry have responded positively to the new rules, seeing them as a step toward more structured and transparent cross-border deals.
Wang Yansong, Deputy General Manager of XCMG Group and directly involved in the Xugong Machinery M&A case, highlighted the importance of the Regulations: “With the formal implementation of the Regulations, there is now a more favorable institutional framework for foreign M&A activities. These rules will guide how offshore capital participates in China’s M&A landscape, ensuring that such activities support China’s economic development and align with national interests.â€
For years, China has heavily relied on foreign capital, particularly in the manufacturing sector, which accounts for around 60% to 70% of total foreign investment. In recent years, multinational corporations have increasingly targeted large-scale Chinese manufacturers. Notably, nine of the world’s top ten construction machinery companies have fully entered the Chinese market, with M&A activities focusing on key domestic enterprises in sectors like construction equipment and electrical appliances.
However, before the widely publicized Xugong M&A case, a series of questionable acquisitions took place. Examples include foreign investments acquiring Dalian Electrical Machinery Factory, Northwest Bearing Factory, Jiamusi Harvester Factory, Wuxi Weifu, Jinxi Chemicals, and Hangzhou Gear Factory. These transactions often resulted in the loss of Chinese brands, market access, and industrial platforms—repeating a pattern that raised concerns about the long-term impact on China’s industrial sovereignty.
Experts have pointed out that China’s reform and opening-up policies have seen a growing misdirection, with local governments prioritizing foreign investment as a tool for economic growth and state-owned enterprise restructuring. Encouraged by this approach, multinational corporations have aggressively pursued acquisitions of leading local firms. Leveraging their global brand and PR power, they have acquired high-quality assets, unique brands, and core technologies at low prices, integrating them into joint ventures and aiming to control operations, suppress competition, and dominate the Chinese market.
In December 2005, Gao Liang, Director of the State-Owned Assets Research Center under the National Development and Reform Commission, warned: “If we allow China’s key manufacturing enterprises to be absorbed by foreign multinationals, the core parts of our industry will fall under foreign control. This would erode China’s ability to lead industrial and technological development and threaten the foundation of economic independence.â€
Yan Yongbin, Vice Secretary-General of the China Federation of Machinery Industry, noted that while foreign M&A activity in China’s equipment manufacturing sector is still limited, the trend is worrying. He emphasized the need for clear and reasonable regulatory limits, as international practice supports such measures.
Wang Yansong further explained that compared to the previous “Interim Regulations,†the new Rules are more comprehensive and detailed, offering better guidance for foreign investors. He added that prior to these regulations, strict confidentiality agreements made it difficult for companies to disclose information transparently. The new rules aim to address this by establishing clearer procedures for raising questions about foreign M&A activities.
Professor Shi Shiping from Shenzhen University believes that opening up to foreign capital is inevitable. He suggested creating an automatic review mechanism that activates when certain thresholds are met, similar to systems in Europe and the U.S. In this context, the Regulations not only help regulate foreign M&A but also provide a safeguard for national economic security.