MOFTEC is inviting advice on the draft from accounting and law firms and will present it as soon as possible, said the official with the ministry's Department of Foreign Investment Administration.

Beijing-based International Finance News reported the new rule could come out as early as the end of this year but the unnamed MOFTEC official declined to confirm the date.

The new rule - together with the recently published temporary rule on foreign investment used to transform State enterprises, a notice on the transfer of listed companies' State shares and individual shares to foreign-funded companies, and a rule on qualified foreign institutional investors（QFII） - will lay down the legal framework for foreign mergers and acquisitions, said a senior lawyer with a Beijing-based foreign law firm.

But the lawyer, who declined to be named, said the draft of the new rule contradicts existing rules on whether companies are entitled to the government's preferential taxation and other policies that are granted to foreign-funded companies after mergers and acquisitions. The rules also differ on how transactions should be priced.

The MOFTEC official would not comment on this issue, saying they will consult with other ministries and commissions before publishing the new rule.

The new rule was introduced in hopes of facilitating and attracting more foreign investment into capital-thirsty China.

An annual report on transnational investment issued by the United Nations Conference on Trade and Development in 2001 showed 80 percent of the world's transnational investment was made through mergers and acquisitions in 2000.

Although the volume halved in 2001, mergers and acquisitions are believed to be the dominant form of transnational investment.

In order to ensure sustained growth in foreign capital inflow, MOFTEC rushed to work on laws and rules paving the way for foreign mergers and acquisitions.

Chinese officials also hope foreign mergers and acquisitions will help inject vitality into State enterprises and lacklustre stock markets.

(China Daily November 13, 2002)