"The question is whether mergers and acquisitions of overseas assets will make Chinese companies more profitable or competitive," said an unnamed analyst with Alliance China Capital Co Ltd, a Shanghai-based consulting firm.

This recent trend, in contrast to the Chinese Government's decision to put State-owned companies up for sale to foreign investors, has excited many Chinese players.

Many are predicting a time when Chinese companies are centre stage in overseas mergers and acquisitions - buying into firms from all over the world.

One such example is the China National Offshore Oil Company (CNOOC), which has spent US$1.2 billion in purchasing shares of oilfields in Indonesia and Australia this year.

"We still have US$2.3 billion on our balance sheet and we have an aggressive plan for our future development," said Qiu Zilei, chief finance officer and vice-president of CNOOC.

CNOOC is not alone among the many Chinese companies that are rushing to make acquisitions of overseas assets.

Experts estimate that domestic companies will spend at least US$2.4 billion on overseas mergers and acquisitions this year.

Although the amount is small compared with the country's annual consumption of US$50 billion in foreign direct investments, the growing number is significant because it shows the ambition of Chinese companies to reach every corner of the world's market - not only with inexpensive commodities but also powerful capital, experts said.

Overseas mergers and acquisitions grant Chinese companies access to important resources such as oilfields and mines, markets and advanced technologies that all enable them to expand quickly.

However the Alliance China analyst, who refused to be named, warned: "This is not the end of the story. Companies will pay dearly for irrational acquisition decisions."

Commenting on appliance maker TCL's purchase of German electronics giant Schneider in September, Chen Liming, an analyst with the IT and electronics industry website - www.ccidnet.com - said the acquisition is a strategic move for expansion into European markets, but it also came at a high cost.

(China Daily November 15, 2002)