Mergers and acquisitions (M&As) have become a new way for China to attract foreign investment, according to the China Foreign Investment Report 2006 released on Friday.
"Foreign investment to China through M&As has grown rapidly in both volume and value over the past few years," the report said. M&As have emerged as a common channel for global investment since the 1990s, accounting for nearly 80 percent of the total worldwide. But they currently account for less than 10 per cent of total foreign direct investment (FDI) to China.
Although the proportion is still small in China, "major domestic enterprises in some key industries have been involved in M&As," said Jiang Xiaojuan, from the State Council's research department, adding that they have a significant impact on the country's economy.
According to the report, M&As help China boost research and development, although, unlike FDI, they do not create new jobs and production capacity. "Chinese enterprises should take advantage of foreign investors' M&As to import advanced technologies and management experiences from developed economies," it said.
Foreign investment through M&As could also help restructure domestic enterprises, said Pei Changhong, a researcher with the Chinese Academy of Social Sciences.
"It will take 300 million yuan (US$37.5 million) to restructure the 400,000 or so State-owned enterprises," he said. "Domestic capital is far from meeting the demand."
But the report also warned M&As are likely to result in underestimation of State-owned assets, foreign investors' monopolizing key industries, threats to some domestic brands and even challenges to national economic security.
The negative impact of M&As was highlighted when US-based Carlyle Group agreed to pay US$375 million to purchase a subsidiary of the Xugong Group, China's construction machinery giant. The Chinese firm controls more than 50 per cent of the country's crane and road-paving equipment market. The case was followed by a French firm's attempt to acquire China's biggest cookware manufacturer Zhejiang Supor Cookware Co Ltd. Some experts and enterprises called on the government to stall the two deals.
With the growth in M&As, the commerce ministry and other government agencies last month jointly published a new regulation on foreign M&As in China. It allows share swaps in M&As and stipulates that any M&As which could result in a monopoly must receive government approval.
(China Daily September 9, 2006)
