On December 8 2004 Chinese leading PC maker Lenovo took over IBM's PC business for 1.75 billion USD, making itself the thrid largest PC producer in the world. This is regarded as a symbol of overseas expansion of Chinese enterprises.

When it comes to the most important business trend in the next 10 years, Donald Straszheim, CEO of a US-based company said China has launched international M&A campaign and Lenovo's take-over was just the beginning.

He thought energy would be the target for the first stage of the M&A surge initiated by China which eyed foreign mineral resources. Any energy company in Canada, Australia, Southeast Asia, Africa and other regions can be a prey of M&A actions by Chinese players.

For example, China Offshore Oil Corporation have stakes in underwater oil and natural gas exploitation in Indonesia and Australia. Yanzhou Coal has built partnership with a coal company in Australia. Baosteel has a venture with an ore plant in Australia and is considering another with an iron and steel plant in Brazil. Huaneng is a shareholder of an Australian power plant.

Talks between China Minmetals Corporation and the largest mineral company in Canada Noranda are still on about a 5.5 billion USD worth of acquisition deal. An AFP report revealed that China has spent 6 billion USD on 58 overseas oil and natural gas projects besides its acquisitions in Africa, Southeast Asia and Central Asia.

The second stage is to make presence in overseas market. This is represented by attempts of prestigious Chinese enterprises to build their global sales and distribution network. As it takes time to build a brand, Mr. Straszheim recognized that the strategy of entering into US market by Lenovo, Haier and Huawei held water.

An analysis by Washington Times noticed the three companies had adopted the same model when they went international.

Chinese players in other sectors seem to follow suit. Shanghai Industrial Group has become the holding party of Ssangyong Motors after it bought about half of the shares of this struggling South Korean company. Negotiations are underway about its take-over of Daewoo Motors' assets in Poland and British MG Rover. TCL, China's second largest mobiles and TV producer, has integrated the TV and DVD business of French Thomson into its operation.

Straszheim saw the alliance with Chinese firms a hope of rebirth for many American companies swamped into poor governance or out of favor. He said these Chinese companies may get their American partners out of woods.

However, although Levono's recent action marks the stride of Chinese enterprise toward the world stage, some American observers still held that for the western market China was still regarded as a place where cheap labor costs helped improve performance, rather than a competitor.

Chinese enterprises which are not armed with sophisticated technologies and are mostly either labor intensive or capital intensive now have begun to made foothold on the world stage. But they are also facing challenges.

Bloomberg questioned some serious risks for Chinese businesses�� ambition of overseas expansion. Is a Chinese company without any experience of overseas operation able to integrate the business of a prestigious US company? Would consumers around the world like to choose a brand which has not built its reputation?

Washington Times pointed out that investing overseas does not naturally mean success. It mentioned the fierce competition that Haier had to face like many of its local peers in America. Last month workers at its facilities in South Carolina threatened a strike.

An official with US Department of Commerce said Chinese enterprises need to integrate into the world. compared with the foreign capital China has absorbed, Chinese enterprises have just make first steps toward the world and launched small investment on overseas market.

Data of Chinese Ministry of Commerce shows by the end of 2003 China had input 33 billion USD into 7470 companies in more than 160 countries and regions. For the first half of 2004, Chinese businesses made 1.2 billion investment overseas which jumped 25 percent over the same period of last year. But this is merely one-thirtieth of foreign capital influx into the country.

The majority of Chinese investors on overseas market are state-owned enterprises. The private sector has shown increasing interest in overseas forays. In recent years, Chinese exporters had to deal with growing anti-dumping investigations launched by their foreign competitors. A global vision is believed to be an effective solution. But there are barriers of languages, culture, and lack of understanding of the situation of a targeted location, especially the laws there.

The recent scandal of China Aviation Oil which may face insolvency or re-organization is all a morning call of risks on overseas market for Chinese enterprises with ambitions of going global.

Mergers and acquisitions are also gaining momentum within China as the competition is getting sharper day by day. The government is looking forward to having giants with international competitiveness. In this process more and more M&A cases did and will happen.

By People's Daily Online