State owned enterprises have been the main source of economic reform and thus the target of M&As. Poor performance of state owned enterprises has been primarily responsible for resorting to M&As. The biggest victims of poor performance of state owned enterprises have been the state banks which have been subject to rigid top down administration. In viewing cross border M&As, there are primarily two conflicting interests, which are the goals of the government and those of the foreign investors. From the government’s perspective, cross border M&As will play a role to discharge the government’s burden to financially troubled SOEs and turn them from loss makers to profit contributors to the local and national economy. However cross border M&As have been subject to one primary concern and that is the ideological struggle of the government between the market efficiency and safeguarding social stability and preservation of public ownership as the cornerstone of China as a socialist country.²²

This first regulation with regard to cross border M&As was issued in 1989 entitled the Interim Provisions of Small Scale State Owned Enterprises (hereinafter referred to as the interim provisions) by the State Commission of Economic System Reform, the Ministry of Finance and the SAMB. Article 2 of the SAMB stated that the local branches of the SAMB shall be in charge of sale of state property rights. According to Article 4, the firms put for sale shall mainly be those insolvent or close to bankruptcy or those suffering losses for a long time due to poor management and those to be sold by local governments for the purpose to rationalize their industrial structures. Thus here, at this point of discussion, it becomes imperative to appreciate the point that separate categories were created which required special treatment and were allowed to come within the sphere of cross border M&As. The same could be done for India, where special categories of companies could be created for the purpose of allowing them to go in for cross border mergers. The sale may be made in the form of sale of an entire enterprise as a whole or sale of asset shares of the target enterprise. Article 14 of the Interim Provisions provide for implications of magnanimous proportions for a country like India. Article 14 states that the retired employees of the SOE to be sold shall be taken care of by the purchaser by either assuming the responsibilities to these retirees by itself or by funding the pension and other social insurance of the retirees. This can be a goldmine foe the already deprived social security system in the country. This could hold true for a large number of enterprises entering the country. They could be given the responsibility of entering the Indian market on the condition that they have to take care of the retired employees of the company being merged.

In 1989 the same state authorities promulgated the Interim Provisions concerning Enterprise Mergers which governed mergers between different sized enterprises under different ownership. Article 2 stipulated that enterprise mergers shall be guided by the state economic development strategy and industrial policy and mergers shall be carried out through competition on the basis of voluntariness and mutual benefit. The major concerns of any mergers as per the provisions could be the quality and efficiency of the business which should be measured by rationalization of the structure of the industry, products and organization and enterprise mergers should not be restricted with locality, ownership, business or administrative subordinate relationship unless the state provided otherwise. Further the article provides that enterprise mergers shall prevent monopoly and facilitate competition and in addition to efficiency, commercial mergers may also have to take convenience of people’s life into consideration. A look at the above provisions would make it clear that any law for India should be broad based and its contours should not be narrowed down, instead they should be enhanced by the regulatory mechanism governing them. Various forms of mergers were specified therein which were in the form of debt assumption, assumption of the entire debts of the target enterprise, asset purchase, purchase assets of the target enterprise, share exchange and acquisition of shares of the target enterprise to the amount to warrant the acquiring party’s control. Therefore the above provisions make it clear that India should follow a model which demarcates and delineates and creates categories for specific categories of mergers and provides for them in one legislation only instead of having provisions here and there as is the case at present. The first company law for China was promulgated in the year 1993.²³ The law recognizes two forms of corporations and they are: limited liability company and joint stock company. Under Article 183 of the law, the ministry or the provincial government concerned should approve the merger.²⁴  Similarly issues related to foreign investors have also been taken care of by the Ministry of Foreign Trade and Economic Corporation (the MOFTEC) when it issued two important regulations in the form of: (I) Provisional Regulations on Certain Issues Concerning Establishment of Foreign Investment Company Limited by Shares and (II) Interim Provisions Concerning Establishment of Foreign Investment Type Company.²⁵

The Chinese securities market is governed by the Securities law of 1998 and the Interim Regulations on Stock Issuing and Trading 1993 (the IRSIT). Chinese securities market in the early stages was characterized by strong governmental control. For example it was the practice of the government to adopt an annual quota of public issuing based on the national economic conditions and development needs. SOEs were given preferential access to the capital markets. This is certainly not the case in India with the government performing a supervisory function alongwith the SEBI. Thus it could be observed that improving market access is the primary way of increasing cross border M&As. This holds true for any country, whether it be communist or socialist. China also promulgated Interim Provisions Concerning Asset Reorganization of State Owned Enterprises in 1998 by using foreign investment as the latest regulation in foreign M&As.²⁶ Therefore what can be the specific instances of Chinese Regulations beneficial for India? The answer to this lies in the flexibility and easy operability of al laws pertaining to cross border M&As throughout the country. Laws should be made keeping in mind the host as well as the guest company.²⁷ Government approvals are already hard to come by for these activities and laws should not hamper the process. Market regulation with respect to mergers should reach a sophisticated level and the law for India should touch many institutions of corporate governance like minority shareholder protection, fiduciary duty of directors, anti trust and due diligence and other defensive tactics. With this in mind, let us have a look at the law prevalent in the U.S.