Learn from spectacular failures in foreign resource sector acquisitions

It has been calculated that, since the beginning of this century, the rate of successful acquisitions in the foreign resource sector by PRC enterprises has been only about 30 percent. In addition to those failed acquisitions by large state-owned enterprises that have been reported in the media, the number of private enterprises that have lost their shirts is also quite numerous. The reasons for their failures are primarily that they did not understand the foreign laws or their target enterprises, and they failed to make good use of domestic and foreign lawyers, and investment advisors.

Key legal issues

Even within the PRC, investment in the resource sector is complex and risky. But when carrying out an acquisition in a foreign resource sector, an enterprise has a greater need to understand relevant laws in detail.

Diplomatic relations. When investing abroad, security of the person and property are of utmost importance. The Ministry of Commerce has formulated the Catalogue for Guiding Outbound Investment in Countries and Industries, and in the Measures for the Administration of Investment Abroad has specially provided that investment in countries that do not have diplomatic relations with the PRC is directly subject to its approval.

Xu Bin is a partner of Concord & Partners, and Christina Dong is the firm’s paralegal

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