Enterprise M&A especially by foreign capital brings energy to the domestic economy; however, the issues of industrial monopoly, RMB exchange rate and state economic safety will emerge at the same time.
Attorney Tang Qinglin and his colleagues have just successfully dealt with a case about enterprise M&A. Because the foreign company repaid the loan principal with a lump sum payment, the enterprise in dept may be free from part of the loan's interest and overdue penalty interest equivalent to a sum of nearly 100 million yuan. Apparently, this 100 million yuan made the state-owned fund incur a great amount of “loss". However, the bank may recover the loan principal in its full amount due to the access of foreign capital, or the bank will may lose more just the loan principal, let alone the loan's interest and overdue penalties. “Therefore, analyzing from similar cases, it’s not completely right to draw the conclusion that M&A by foreign capital causes losses of state-owned assets.”
The assets evaluation during the enterprise M&A is another way that the assets can be lost. There are discrepancies between the existing assets evaluation systems, the standard in Chinese enterprises and the international standard adopted by the Four Giant Accounting Firms commonly selected by transactional companies. These differences have resulted in different evaluation results. If the evaluation results are too high, the foreign party could not accept; if the evaluation results are too low, there would be the so-called loss of state-owned assets. Evaluation of intangible assets such as patent, trademark, trade secret and land use right should be paid attention to in asset evaluations.
Extracted from: “Set Up and Perfect State-owned Assets Evaluation System, Prevent Loss of State-owned Assets” posted by reporter Zhao Jie in Journal of Finance on March 27, 2006