Foreign M&As create problems
Updated: 2007-11-12 09:02
M&A boom
Foreign PE inked 129 deals in China last year, with a total investment of US$12.9 billion, according to industry consultancy Zero2IPO. In the first quarter of this year, the investment soared to US$7.56 billion, a year-on-year jump of 329 percent, says the Beijing-based consultancy.
"The increase of cross-border M&As is a new trend in China," Pan Biling, deputy director of the Foreign Investment Department under the Ministry of Commerce, was quoted as saying by Beijing-based Economic Reference.
"The number of foreign investors who are seeking our advice for their intended M&A deals on the mainland has been increasing briskly in recent years," says Li Ying, a lawyer with US law firm Heller Ehrman's Beijing office.
Experts say foreign M&A activity in China is expected to increase in the coming years. Over the past two decades, many local firms have grown into leading players in their respective industries. For foreign players, acquiring these local companies could provide them with a short cut into the booming Chinese market, they say, allowing multinationals to put the acquired firms on their global chessboard to increase their efficiency and ride the Chinese economic boom.
"Acquiring controlling stakes in the target firms, which are usually leading industry players, and taking the reins of their sales networks are two prime goals of multinationals' M&A activities," says Feng Baoshan, director of the market development division under the China Machinery Industry Association. The multinationals then gradually strip acquired firms of their capacity to independently develop technology and products, Feng says.
This, say Feng and other experts, is an alarming trend threatening national economic security. "If all leading domestic companies are acquired by foreign firms and their existing technology and product development capacity left uncared for by the new masters, how can innovation and technological upgrade be realized?" asks Feng.
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