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China Encourages Foreign Mergers to Attract More Investment
Chinese officials have repeatedly told foreign entrepreneurs attending a trade fair that they are encouraged to either buy or merge with Chinese firms.
Their words were echoed by a decision ABB just announced at the five-day Fifth China International Fair for Investment and Trade (CIFIT) which concluded Wednesday in Xiamen, a coastal city in east China's Fujian Province.
ABB decided to buy 80 percent of a local plant's stock ownership to form an ABB firm producing control devices for electronic equipment in Xiamen.
The official statements and ABB's business plan jointly show that China is making a significant policy shift in absorbing foreign investment. Foreign investment will be able to enter China in ways of share holding, purchase or merger.
China will explore more ways to upgrade use of foreign investment, including channeling it to purchases, mergers, investment funds and securities funds, said Hu Jingyan, section chief in charge of foreign investment with the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), at several investment seminars given at the CIFIT.
He said that China will push forward cooperation between state- owned enterprises (SOEs) and transnationals and encourage foreign investment to get involved in SOEs' restructuring, by making use of the new round of structural changes in the developed countries initiated by mergers.
Government departments are working on regulations and plans on alienating SOE stock ownership to foreign investors.
Economists believe that China has decided to absorb more foreign investment through purchases and mergers with foreign funds, and accelerate change and upgrading of its industrial structure to give a boost to economic development. Global transnational mergers and purchases have become the trend of international investment, according to the World Investment Report 2000 issued by the United Nations Conference on Trade and Development (UNCTAD).
The transnational mergers and purchases around the globe in 1995 made up 69.7 percent of world's total foreign direct investment (FDI). The figure increased to 83.2 percent in 1999, according to the report.
In the case of China, there are more than 378,000 foreign- funded enterprises with over US$700 billion of contracted investment in total. The utilized foreign investment in China has surpassed US$370 billion.
Over 70 percent of the foreign investment was able to enter China in forms of joint-ventures, cooperation, or sole investment.
Lin Demu, who holds a doctorate in international economic law, said that China's way of absorbing foreign investment, which is different from the international practice, contributed to the slowdown of China's use of foreign investment over the past few years.
Edward M. Graham, senior research fellow of the Institute for International Economics based in Washington D.C., said that the boom of mergers in the U.S. and Europe is coming to an end -- but this does not necessarily mean the same thing will happen in Asia.
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