Under the law, to take effect on August 1, 2008, local or overseas companies with more than 50% of China's marketshare for any product can be investigated to see if they are "abusing'' their "dominant'' positions, according to a copy of the legislation obtained by Bloomberg.
Foreign investors that make an acquisition resulting in a company that exceeds 50% marketshare will have to receive approval from the Anti-Monopoly Enforcement Authority, according to the
law. "We don't anticipate that this will prevent foreign merger and acquisitions activity,'' James Zimmerman, chairman of the American Chamber of Commerce, said in an e-mail response to questions.
"But as the competition law evolves, foreign investors will need to be sensitive to the review process and procedures.'' The Chinese government is strengthening laws to help local companies compete as the nation enters its sixth year as a member of the World Trade Organisation, which ended various preferential policies for domestic firms. China tightened control of foreign takeovers this year amid increasing criticism that overseas companies have gained dominance in some industries. China attracted more than $300 billion in foreign direct investment since becoming a WTO member on December 11, 2001, as companies such as Carlyle Group, Motorola Inc., General Motors Corp. and Siemens AG expanded to take advantage of lower wages and average economic growth of more than 9% in the past five years.
The Chinese government already has been restricting foreign investors. Carlyle, the US buyout company, had to scale back plans to buy shares in a construction-machinery maker and was rejected from acquiring part of a bank. Goldman Sachs' plan to buy 10.7% of Guangdong Midea Electric Appliances Co. was blocked by regulatory authorities.
The China Securities Regulatory Commission rejected Goldman's proposed stake purchase, Midea, China's largest publicly traded appliance maker by market value, said in a statement to Shenzhen's stock exchange on Thursday.
The deal, announced in November, was earlier approved by China's commerce ministry. The law, which took 13 years to draft and pass, defines abuse as when products are sold at "unfairly high'' prices or bought at "unfairly low'' prices, without specifying what constitutes unfair.