New rules issued by Beijing allowing international companies to buy into listed state-owned enterprises are unlikely to draw a fresh flood of foreign capital into the mainland market in the short term, according to analysts. Despite an end to the ban on equity investments, foreign companies still faced many restrictions, they said. The rules, set out in a circular issued by the China Securities Regulatory Commission (CSRC), the Ministry of Finance and the Ministry of Foreign Trade and Economic Co-operation, reverse a 1995 State Council prohibition on foreigners buying state and legal-person shares. Foreign firms, including companies from Hong Kong, Macau and Taiwan, are now allowed to buy untradable stakes in listed firms held by government institutions and government-controlled enterprises. But to discourage speculative buying, the circular said foreigners must hold their investments for at least 12 months. Philip Chan, research director of Shenyin Wanguo Securities (HK), said the circular excluded a number of state-owned companies from foreign investment. Beijing said acquisitions had to comply with the 'Industrial Catalogue for Foreign Investments', which lists industries closed to foreign investment such as military facilities. The catalogue, which took effect on April 1, also excludes foreign firms from taking controlling stakes in airlines and civil airport construction and operation firms. 'Foreign companies can take controlling stakes in state firms engaged in industries listed in the catalogue as open to foreign investment,' a CSRC official said yesterday. Examples include port construction and operations businesses and container terminals. The new rules stipulate that sizeable deals involving the restructure of state-owned enterprises or the management of state shares must be approved by central government. Central government approval was also needed for investments sold on to other foreign entities after the lock-up period, the official said. 'Foreign enterprises have strong financial strength and they would easily be able to take over listed state-owned enterprises. However, these are usually the 'dragon head' in their own industries. With the arrangement, foreign companies will not easily dominate any of the mainland industries,' the official said. Mr Chan said the relaxation was not that significant as foreign companies had from time to time obtained approval to buy into state-owned enterprises. But it did create a level playing field.
