China is bolstering the strength of its capital market to encourage mergers and acquisitions (M&A) in addition to the restructuring of listed companies, a move that analysts said will continue to be a key driver of global deal activity.

Shang Fulin, chairman of the China Securities Regulatory Commission said in October that China will strengthen the capital market to support M&A and the restructuring of listed companies in the country's key industries.

Shang also stressed further efforts to broaden financing channels to allow qualified companies to finance deals and restructuring by issuing additional shares, bonds and convertible debts.

Chinese deal activity, both inbound and outbound, has been a key driver of the global M&A rebound in 2010. The volume of takeovers reached $139.3 billion as of October, up 3 percent on the previous high of $134.6 billion during the same period last year, according to research by Dealogic.

Natural resources continue to be the main industry target for Chinese investors overseas. The largest Chinese purchase so far is China Petrochemical's $7.1 billion acquisition of the Brazilian unit of the Spanish oil company Repsol. The deal is also the second-largest on record for China Petrochemical after the acquisition of Addax Petroleum Corporation for $8 billion in 2009.

"China's demand for energy and natural resources will not disappear, at least in the short term, so deal activity in natural resources assets will continue to lead the M&A trend," said Tao Jingzhou, partner of the US-based Jones Day law firm.

In the meantime, China's domestic and inbound M&A deals have also rebounded strongly, reaching the sort of levels last seen before the global financial crisis.

Deal volumes increased by 26 percent to 1,884 in the first half of this year, compared to a three-year low in the first half of 2009, according to a recent report by the accounting firm, PricewaterhouseCoopers.

Analysts said that domestic strategic M&A activity is expected to increase in industries previously only accessible to State-owned enterprises. Meanwhile foreign investors are expected to re-enter the market at volumes last seen before the financial crisis.

China has striven to become less reliant on purchases of overseas mineral and energy resources and is moving into a broader range of sectors. Analysts said that deal activity is likely to increase in the industrial manufacturing and consumer sectors in the future and it has begun spilling over into healthcare and technology assets as well.

"There are going to be more M&A opportunities in industrial assets including the automobile industry, equipment manufacturing and the healthcare sector," Tao said.