Driven by increased competition, which, in turn, derives from the international trends of deregulation, integration of capital markets, and adoption of new technologies, the growth of mergers and acquisitions (M&As) worldwide has been phenomenal, rising nine fold from 1984 to 1999 to a total value of US$3.4 trillion.

But due to the underdevelopment of related regulatory frameworks, few foreign companies, in spite of their high enthusiasm, have ever conducted M&As in China.

"Our law firm gets inquiries every day on this (cross-border M&As)," said Peng Xuefeng, an attorney at Dacheng Law Firm.

Currently, there is only the Company Law and a few administrative regulations to guide the practice of M&As - which leave many fundamental questions unanswered.

Ting Liu, president and chairman of Asia Link Group, a financial consulting firm, said China's further opening up to foreign investment following its entry into the WTO will result in increased cross-border acquisitions, especially in restricted industries.

He said continued growth in China's domestic M&A activities will also be perceived in the following years as a result of the ongoing reform and asset restructuring of State-owned enterprises and the consolidation of China's highly fragmented industries.

But to foster the healthy development of domestic M&As, the government should restrict its role to supervision, cautioned Peng.

The government has directly involved in many M&As in China, most of which have taken place among State-owned enterprises (SOEs). Many people have doubted the efficiency of such M&As in solving financial and competitive problems of the different parties involved.

"The main impetus is not companies seeking to improve their competitiveness, but government departments looking for a way out for loss-making SOEs," said Peng.

He said this direct intervention by government has led to arranged marriages, which have had unhappy endings for the companies involved.

Wang Zukang, chairman of trading company Orient International, said the government should also remove the various institutional barriers to promote M&As, which is "an essential part of helping Chinese companies adjust to a more modern, market-oriented economy."

The social security system is underdeveloped, making it difficult to lay off workers; regulations governing the capital markets and the transfer of assets are unclear and incomplete; and government jurisdiction is unclear, making mergers which cross provincial or sectoral boundaries extremely difficult, he said.

(China Daily April 3, 2000)