Shanghai, Aug. 10 (PTI): Concerned about acquisition bids of Chinese companies by foreign giants, including NRI steel baron Lakshmi Mittal, the Chinese government has tightened rules, insisting that takeover by overseas firms should not affect economic security or lead to loss of state assets.

Foreign investors should abide by Chinese laws and policies in their acquisition of domestic companies, the modified regulation, jointly published by the ministry of commerce, the state-owned Assets Supervision and Administration Commission and four other government agencies, says. The regulation, to take effect on September 8, says acquisition should not affect competition rules of the market or lead to loss of state assets.

Foreign investors should follow local policies on industrial development, land and environmental protection.

For industries not allowed for solely foreign invested operations, foreign investors cannot have full ownership of the company purchased, it says.

Firms required to be dominated by Chinese shareholders should remain controlled by the Chinese side even if they are purchased by foreign investors, says the regulation.

The regulation also forbids foreign capitals to buy companies in industries where foreign operations are not allowed, it says. The Chinese government move came after some sectors of the Chinese industry expressed concern over growing acquisitions of local firms by foreign giants.

For example, the China Iron & Steel Association recently urged the government to place tighter controls on foreign investment in its massive but fragmented steel sector.

The threshold for foreign investors in domestic steel firms, especially the large ones, should be raised to ensure that Chinese manufacturers remain the mainstay of the sector, association vice-chairman Luo Bingsheng said.

“The sector should be controlled by (Chinese) state-owned and privately-owned steelmakers, instead of foreigners, as it is one of the country's most important basic industries,” Luo said.

while reacting to the world's no 2 steelmaker Arcelor's acceptance of a takeover bid from Mittal last month and their mergers and acquisitions (M&As) in China, the world's biggest steel-making nation and market.

Mittal spent $338 million last October buying a 36.7 per cent stake in Valin Steel Tube & Wire based in central China's Hunan province. Earlier this year, Arcelor also clinched a deal to acquire a 38.4 per cent stake in Laiwu Steel Corp in the eastern Shandong province for $260 million.

According to a national steel industry policy launched last year, foreign investors are banned from having a controlling stake in Chinese steelmakers.