Sources said the revamp could also include the establishment of a new anti-monopoly department to regulate monopoly ownership, particularly by foreign players, in certain industries.

'China is about to face a major wave of mergers and acquisitions. The pattern of China's FDI (foreign direct investment) is changing from setting up new factories to acquisitions,' Credit Suisse chief regional economist Dong Tao said.

'It's important for the government to make sure industries are not being monopolised by specific forces, domestically or internationally, so consumers' interests are not being undermined. But if sentiment is guided by economic nationalism, I think that's going to be problematic.'

Most cross-border mergers and acquisitions are done using wholly foreign-owned enterprises registered as 'service' enterprises, which would bring them under the jurisdiction of the new trade in services department as well as any new anti-monopoly department.

At present, deals of less than US$30 million do not need approval from the Ministry of Commerce at the state level but the new departments will allow the ministry to scrutinise more closely individual transactions below that level.

'In practice, this could lead to indefinite delays in the approval process and will delay the overall timeline for completion of cross-border investments,' said a Beijing-based lawyer specialising in venture and private equity investments in China.

An ideological debate has been raging in Beijing in recent months over whether foreign investors have snatched monopoly positions in certain industries, such as brewing, cosmetics and supermarket retailing, and whether state assets, including shares in the state-owned banks, have been sold too cheaply.

There has been a clampdown on foreign-led mergers and acquisitions activity, most prominently in the troubled stock brokerage sector where investment banks such as Merrill Lynch, JP Morgan and UBS have faced delays or rejection of their proposed investments.

The commerce ministry initially rejected a US$375 million takeover of China's largest construction machinery firm by US buyout fund Carlyle Group and would approve the deal only if it did not sell Xugong Construction Machinery to a foreign rival, Reuters reported.

China reported a tripling of its trade surplus to US$102 billion last year but official statistics do not take into account the trade in services, an area where it almost certainly runs a deficit.

The new department will also attempt to estimate the scope of the growing trade in services while friction with trade partners, particularly the US, is on the rise.

'On the goods side, the Americans can only sell the Chinese airplanes and beef. There aren't many other things they produce on a globally competitive basis these days. But Americans do have many services that China can and should buy,' Mr Tao said.