M&A in China may be fraught with regulatory uncertainty, but a growing middle class might just provide the magic needed for foreign investment, writes Richard Li

It really is a foreign investor’s dream. China, once dubbed the factory of the world, is beginning to reap the rewards from decades of hard work, and now has a middle class of staggering proportions, which is intent on purchasing all the iconic items that go with this classification. Savvy foreign outfits are in the market for acquisitions to upgrade production lines of consumables, or simply to make their own stamp on a popular new subsector.

Health services, property and education are all legitimate targets, while e-commerce, telecommunications services and even the burgeoning movie and cinema industry are among other sectors that have attracted overseas M&A interest.

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But as always, it’s not that simple. China opens arms where it needs foreign expertise and closes tight when it does not desire outside influence. And regulatory hurdles in everything from the approvals process to intellectual property ownership are also causing headaches. The swift development of labour and environmental laws, among others, have also created traps for the unwary.

Sonny Cave, general counsel at ON Semiconductor, lists his main concerns regarding mergers and acquisitions in China: antitrust clearance, labour issues, hidden liabilities, ethical conflicts and intellectual property protection. On the regulatory side, there are a few other items to note, he says: “industry policy and restrictions, approval practice and national security review, all lacking full transparency and well articulated rules”.

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