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China's mergers and acquisitions (M&A) market is growing rapidly as more foreign investors expand their China business in this way.
Though M&A at present contributes a small proportion of total direct foreign investments in China, officially estimated at around 10 percent in recent years, it will gradually become mainstream, experts say.
Many M&A cases have not yet been calculated by the authorities, said Zhang Zhao, a Shanghai-based partner of Jones Day, a leading US law firm in the M&A field.
Zhang's law firm has been handling a number of big M&A deals, but details were not divulged.
Right now, foreign buyers are mainly industrial companies, private funds and other financial organizations.
Instead of making green field investments, which means setting up a new plant or entity to start business in China, these foreign investors prefer acquiring an existing Chinese business, which is more economical and efficient, said Zhang at a seminar held by GTJA Allianz Funds in Beijing on Friday.
Sources with China's Ministry of Commerce said in October the total cross-border M&A volume in China stood at US$35 billion in 2003 and the figure is expected to grow this year.
Statistics from the United Nations said the volume of cross-border M&As expanded by 3 percent in the first half of 2004, which means that global climate is getting warmer for M&A.
M&As offer a shortcut to foreign investors to obtain a developed research network, as well as production, distribution, sourcing and reinvestment.
It is much faster than building a new plant and the buyers can directly enjoy the resources and market share of the buy-out target, said Zhang.
Moreover, Chinese authorities have expressed support to foreign strategic investors' participation in the restructuring of State-owned enterprises (SOEs) in most economic sectors.
Apart from SOEs, private companies are also becoming buying targets of foreign investors, said Zhang.
On the other hand, as the Chinese economy grows, more Chinese companies are eyeing overseas markets and making outbound investments in similar ways.
The recently clinched deal of China's largest personal computer maker Lenovo's buying the PC unit of IBM is such an example.
The largest overseas acquisition by Lenovo so far, the deal, at US$1.75 billion, will expand the company's PC business fourfold to rank third in the world.
Overseas acquisition has become an effective tool for Chinese enterprises to enhance overseas competitiveness and market share, said Zhang. But they still have a lot of homework to do to get better understanding of foreign culture and laws to reach an advantaged position in negotiations.
China as a whole should also consolidate relevant legislation and simplify administrative procedures to create a more favorable environment for both inbound and outbound investments.
Training of relevant professionals is also an urgent matter for the country.
Apart from industrial investments, Chinese institutions are also eager to make capital investments overseas, said Xian Jiang, chief executive officer of GTJA Allianz Funds, a joint venture fund management company in Shanghai.
They are putting more focus on liability matching, low investment risk, short-term gains and greater diversification, he said.
The fund company also released its 2005 stock market investment strategy report on Friday.
The report said the market risk had been largely digested after consolidation, though uncertainties remain. It recommended stocks with solid results in 2005, new offerings of large-cap and blue chips and resource companies that would benefit from a high market demand.
(China Daily December 20, 2004)
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