And why not?

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Buying a business in China is becoming more difficult if you’re not Chinese. The country’s increased prosperity has brought with it a less welcoming attitude to foreign acquisitions. Perhaps China no longer needs foreign money, or only wants it with more strings attached.

Such were the sentiments of lawyers we spoke to while researching this month’s feature on inbound mergers and acquisitions. One said we are living through “an age of tightening and protecting”.

The article Another brick in the wall tracks two major developments. First, an internal memo circulating in the China Securities Regulatory Commission has thrown the future of the variable interest entity (VIE) into doubt. VIE is a structure – sometimes known as the Sina model – by which foreign parties have invested in companies in sectors in which foreign investment is restricted or banned. Despite a ban on foreign investment in the internet sector, many of China’s top internet companies used this structure to get foreign cash on their way to an overseas listing. Now, companies in more traditional sectors are adopting the VIE structure, and the CSRC memo says it is a threat to China’s national security. Official action against VIEs looks likely.

Second, and still with national security in mind, China has recently introduced a national security review for foreign investments. The review adds another layer, and further delay, to the approval process for many foreign investments. It is not clear which investments will need to be reviewed. Notions of national security are broad; internal guidance is rumoured to exist but has not been made public; and some lawyers say it may be difficult for companies to decide whether a particular transaction should be submitted for review.

But others defend the review. “And why not?” said one lawyer. “Other countries have them.”

In introducing a national security review procedure, China is only following the lead of other nations. In both Australia and the US, the investment plans of Chinese companies have been thwarted by those countries’ equivalent procedures.

Our second feature article this month, Making compliance matter, stresses that companies in China must develop their own procedures and solutions and not blindly adopt those devised elsewhere. Companies the world over develop and implement compliance programmes covering everything from sales to environmental law. But those we spoke to in the course of producing the article agree that for a compliance programme to work in China, it should be designed in consultation with local staff, not imported.

China is finding its own way forward. And why not?