"We are conducting simultaneous negotiations with Beijing and Hong Kong," said Chen Xinzhong, general manager with Shanghai CTS, who also revealed that the result would be revealed later this year.

The two candidates likely to merge with Shanghai CTS are the Beijing-based China Travel Service (CTS) Group, one of the mainland's top three travel agencies, or China Travel International Investment Hong Kong, according to company sources.

Local media reports earlier this week quoted unnamed industry sources, who claimed that the Hong Kong-listed company had beaten off the Beijing firm and reached an agreement with Shanghai CTS.

Sources also predicted the merger, involving more than 100 million Hong Kong dollars (US$12.8 million), will be completed by the end of March this year, with negotiations reportedly having entered the final stages.

A senior manager with the investment department of the Hong Kong company declined to comment on the report in a telephone interview, but said "we haven't yet made such news official."

Shanghai CTS, an autonomous member of the CTS Group, earned 20 million yuan (US$2.4 million) in net profit last year, ranking among the mainland's top 10.

Chinese mainland travel agencies have been accelerating the merger and acquisition process since the country joined the World Trade Organization (WTO).

The central government has promised to allow overseas investors to control mainland travel agency joint ventures by the end of 2003 and permit them to run solely funded operations by 2005.

China Travel Hong Kong also announced last year its ambitious plan to acquire or merge with around 40 mainland travel agencies over the next three years with regional CTS units given top priority as both companies share the same brand in Chinese characters.

So far, the Hong Kong company has acquired Xinjiang and Chengdu CTS units, respectively in Northwest and Southwest China. By late last year, the CTS Group had also completed the acquisition and restructuring of 13 CTS travel agencies around the country, including Jiangsu CTS in East China.

The tourism industry in East China, despite great potential, is hampered by limited capital and a lack of national networks, analysts said.

The Shanghai Tourism Bureau predicts that the number of tourists to the city this year is expected to increase around 30 per cent over last year's level.

The city will receive 3 million overseas tourists and 95 million domestic visitors this year, with a total revenue of 109 billion yuan (US$13 billion), according to bureau statistics.

(China Daily February 18, 2003)