A high-level Chinese business delegation is set to travel to Europe this weekend to explore investment avenues - close on the heels of a trade team which returned to Beijing last weekend.

Officials in the Ministry of Commerce (MOC) said the team will be mainly looking at investment and merger and acquisition (M&A) opportunities in the first mission of its kind to western Europe.

The most likely targets are companies competitive in manufacturing, clean energy and environmental protection, Beijing-based trade specialists said. Given the market volatility, financial service companies are unlikely to be on the shopping list, they said.

"We will be exploring opportunities for financial participation in European companies," said Commerce Minister Chen Deming, who headed the first trade mission to Europe but, according to MOC sources, is unlikely to lead the second.

Chen made the remarks on Monday after wrapping up his week-long trip to Europe, mainly to import high technologies and advanced equipment.

That trip covered four European countries - Switzerland, Germany, the United Kingdom, and Spain - and resulted in a slew of Chinese orders worth more than US$13 billion.

MOC officials would not reveal any specific figure or targets of interest for investment, saying only that in all likelihood, it would take a longer time to allow Chinese businesses to examine a range of options.

Observers said that while the first trade delegation reflects China's rising domestic demand and its determination to keep its markets open amid rising protectionism, the second will show its interest in working with Europe on investment and corporate management.

China's growing M&A appetite, according to Li Jian, a researcher with the Chinese Academy of International Trade and Economic Cooperation, makes sound business sense.

"The global economic crisis allows Chinese companies, with their ample cash reserves, strategic cross-border partnerships with cash-strapped international companies," Li said.

According to a report released yesterday by UK-based The Mergermarket Group, an M&A intelligence service provider, Chinese outbound M&A activities are set to increase this year.

The report said 2009 would be "one of the best years" for buyers in the global M&A arena. Asset prices have declined due to the deepening economic crisis; and in many cases, owners are being forced to sell assets to pay down debts as bank and market financing dry up.

The two primary motivations for Chinese companies considering foreign acquisitions are to expand overseas market share and to acquire technology know-how, according to a survey included in the report.

China is currently looking for productive ways to use its nearly US$2 trillion in foreign-exchange reserves to support companies in their overseas development, Fang Shangpu, deputy director of the State Administration of Foreign Exchange, recently said.

In the largest ever overseas investment by a Chinese company, the country's biggest aluminum producer Aluminum Corp of China (Chinalco) will inject US$19.5 billion into Rio Tinto Ltd, the London-based miner announced on Feb 12. This will increase Chinalco's stake in the miner to 18 percent, from the 9 percent it held earlier.

However, some analysts also warned of the potential risks in overseas M&A activities. "Chinese firms must be careful with those assets on sale and avoid bringing home 'new burdens'," said Feng Lei, a researcher with the Chinese Academy of Social Sciences.

(China Daily March 4, 2009)