Takeover hostility Acquisitions of Chinese enterprises by foreign companies are increasingly being challenged amidst a growing mood of 'economic patriotism.' The former National Bureau of Statistics Commissioner Li Deshui is one of the most prominent of the critics. During last month's session of the National People's Congress(NPC. the country's law-making body, he warned that the acquisition of promising local companies by multinational investors was creating monopolies in a number of sectors. 'If China lets multinationals' malicious mergers and acquisitions go ahead freely, China can only act as labor in the global supply chain,' said Li, worrying that Chinese brands and the innovation ability of the national industry would disappear gradually and core parts, key technologies and high value added of China's leading enterprises might be completely controlled by multinationals.' His pointed criticism generated wide media exposure and created fears of a foreign mergers and acquisitions(M&A) threat. Several factors have contributed to the climate, including national pride, lingering resentment over Chinese oil giant CNOOC's failed US $18 billion bid for Unocal last year, and a protectionist resurgence, partly in response to a growing protectionist sentiment in the United States and Europe against low-cost Chinese exporters. 'These emotions about foreign capital are the last thing we want,' says Fei Guoping, director of the China Mergers & Acquisitions Association under the All-China Federation of Industry and Commerce. 'Such unwarranted enthusiasm will only hurt the country's economic development. What we want is to make sane progress in building an M&A review system based on national economic security,' says Fei, who is the chief writer of a proposal on such a review system submitted by the federation to the NPC last month. While the Chinese Government welcomes foreign investment, through M&As or otherwise, the explosive increase in FDI has given multinationals a degree of market power that many Chinese find worrying and potentially damaging to the development of domestic enterprises. However, if the worry is directed at the scale of foreign investment, it is missing the target, says Fei, who believes the key point is the absence of a law and a government body to look at possible M&As that may hurt national security. In China, some department regulations involve M&A reviews and several government bodies have the power to look at parts of the M&A cases. The Ministry of Commerce(MOFCOM)) and the National Development and Reform. Commission(NDRC) are entrusted with the primary responsibility of supervising foreign-related M&A transactions. The former is the principal foreign investment regulator while the latter is responsible for approving the foreign investment project application. The nature of the target may lead to the involvement of other regulators. The State-Owned Assets Supervision and Administration Commission plays a significant role in transactions involving State-owned enterprises. The China Securities Regulatory Commission, which is responsible for monitoring and regulating China's capital markets, will be involved in transactions linked to listed companies. There is a higher level of government participation in M&As in China than is typical in other countries, says an official from skincare company L'Oreal, which acquired local brand Mininurse. 'Despite the recent relaxation of foreign investment restrictions, pervasive approval requirements re- main a distinctive feature of M&A transactions in China,' says the official, who did not want to be named. While the complicated M&A review process often scares away potential investors, few efforts are made dur