An official with the ministry of commerce said China plans to revise regulations on foreign mergers and acquisitions to defend the country's industrial security and make better use of foreign investment.

Sun Xiaohua, deputy director of the Foreign Investment Department of the Research Institute of the Ministry of Commerce, broke the news to the Shanghai-based China Business News on Monday.

He said that the 2004 regulation set a good framework but didn't touch upon foreign mergers and acquisitions in important sectors that may jeopardize China's industrial and economic integrity.

As more foreign firms chose to invest in China through mergers and acquisitions rather than establishing new companies, experts have urged market watchdogs to stay alert for malicious takeovers by foreign companies.

China's official data shows that a record high 21 mergers and acquisitions occurred over the first six months of the year. Only three involved domestic companies acquiring overseas firms. The average takeover price of the other 18 foreign mergers rose to a record high of US$160 million.

In contrast, the number of foreign-funded companies set up in China over the same period fell by 6.89 percent to 19,750.

In its new five-year plan released earlier this year the Chinese government indicated it wanted to use foreign mergers and acquisitions to facilitate the reform of state-owned enterprises and industrial restructuring.

Along with the more active foreign mergers and acquisitions, however, are rising concerns over the loss of state-owned assets and low prices paid by foreigners in their takeovers.

The latest controversial case involves the Carlyle Group of the United States which agreed to pay US$375 million to purchase a subsidiary of the Xugong Group, China's construction and machinery giant, which has yet to be approved by Chinese regulators.

(Xinhua News Agency July 18, 2006)