The door has already cracked open for international mergers and acquisitions in China, said trade officials, which gives a boost to foreign direct investment (FDI) as well as the national economy.

But, taking into account the growing pains that may appear as consequence of introducing cross-border alliances in China's economic development, officials have chosen a safer "prudent" stance over hurrying to welcome a full-scale development, a senior trade official said last week.

"Transnational mergers and acquisitions are an integral part of a country's economic globalization," said Ma Xiuhong, assistant minister of the Foreign Trade and Economic Co-operation (MOFTEC).

Officials and experts must not neglect or dodge the large potential impacts of transnational consolidations on FDI and the economic development, Ma added.

The central government is to promulgate relevant laws and regulations to improve its administration on the issue, she promised, and pave the way for China to accelerate its involvement in the global economy.

However, she confessed: "As a developing country, China must be very prudent in framing relevant laws and rules."

Transnational mergers and acquisitions made up more than 80 percent of the world's FDI last year, according to the World Investment Report 2000 of the United Nations Conference on Trade and Development.

Ma Yu, director of the foreign capital department of the Chinese Academy of International Trade and Economic Co-operation, said he believes that even in its broad sense transnational combining makes up a small portion of FDI in China compared to setting up new plants. Official figures are not currently available.

Most foreign investors choose to set up new plants in China, because unlike developed countries where the market is saturated and competition is harsh, China has yet to open its market wider to accommodate new plants, said Ma Yu.

The director said that till now China has not undertaken any transnational mergers and acquisitions in its large and medium-sized enterprises. Daily life activities like aviation, transportation, telecom, cooking gas and water supplies are untouched by such actions.

"China lacks the necessary market mechanisms and a perfect legal framework for transnational mergers and acquisitions," he said.

Foreign investors have so far been barred from China's A-share market, which is still in its infancy and foreign-invested projects must get approval from MOFTEC before implementation.

The government now hopes to merge some of its idle assets in its state-owned enterprises with foreign investment. Ma predicted that a nod to transnational consolidations will not come quickly as it is closely linked with the gradual opening of the capital market.

Wu Suyan, vice-director of the institute of international technology and economy of the Development Research Centre of the State Council, was more optimistic about the future of cross-border mergers and acquisitions.

Wu said a major driving force behind mergers and acquisitions is powerful transnational companies seeking to complement each other in technologies and products.

Chinese companies have not yet been powerful enough to join ranks with international companies, which partly explains why so few mergers have taken place, she said.

The state's tight control on sectors such as energy, automobiles, telecommunications and finances, has also contributed to the scarcity of transnational team-ups in China, Wu said. Most world mergers and acquisitions happen in these sectors.

But Wu said she expects transnational mergers and acquisitions to come into play after the country's pending entry to the World Trade Organizations, the further opening up and the rapid growth of local companies.

(China Daily 11/5/2000)