The New M&A Regulations expressly lay down provisions to regulate the use of offshore entities owned or controlled by PRC domestic enterprises or PRC residents to make an Equity Acquisition or Asset Acquisition, and disallow the target company or the converted FIE to enjoy preferential treatments which are generally available to genuine FIEs set up by foreign investors.

The New M&A Regulations stipulate the following requirements：

1.  If the offshore investor and the PRC target company are connected parties (i.e. owned or ultimately controlled by the same shareholders who are PRC domestic enterprises or residents), then the proposed M&A transaction must be reported to MOFCOM for examination and approval by following the procedures laid down in the New M&A Regulations;

2.  The connected parties to the proposed M&A transaction have to make a full and complete disclosure of the identities of the de facto controllers of the offshore investor and the target company, and have to provide a comprehensive explanation of the purpose of making the acquisition, which explanation should also demonstrate that the appraisal process to determine the transfer price has been conducted fairly and in accordance with market practices.

3.  A FIE formed as a result of a M&A transaction conducted between connected parties can still enjoy the preferential treatments available to genuine FIEs if the Equity Acquisition is made by means of subscription of new equity by the foreign investor or if, after completing the acquisition, the foreign investor subscribes for new equity in the target company, and such new equity amounts to 25% or more of the total registered capital of the target company.

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