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SCMP Reporter

Beijing is improving its rules in order to boost foreign investment in mergers and acquisitions.

'It is an important issue . . . to expand foreign investment via mergers and acquisitions,' said Ma Xiuhong, assistant minister at the Ministry of Foreign Trade and Economic Co-operation (Moftec), according to information posted yesterday on the Web site www.cninfo.com.cn.

Beijing hopes better merger and acquisition rules will help channel more foreign investment into the restructuring of its state-owned enterprises.

Although some key jurisdiction issues had yet to be resolved, 'the ministry hoped to make some progress towards the direction within the year', said an informed source.

Of cross-country investments worth more than US$1 trillion globally last year, 80 per cent involved mergers and acquisitions, Ms Ma said.

But they made up only a fraction of last year's actual utilisation of foreign direct investment (FDI) of US$40.7 billion in China.

The three key laws on foreign-invested enterprises did not prohibit foreign investors from pursuing mergers and acquisitions in China, Ms Ma said.

Moftec had long had on the books additional guidelines on mergers and acquisitions and spin-offs by foreign-invested enterprises. However, in reality, 'Moftec has little say in the disposal of state-held assets', said the source.

'Whoever owns the enterprise has the ultimate decision-making authority.'

The few existing mergers and acquisitions by foreign investors involved largely small state-owned enterprises, said the source.

Moftec was working with other government agencies to 'standardise foreign merger and acquisition activities in China', Ms Ma said.

That meant entrusting certain government agencies with the authority of overseeing such activities.

'But it is difficult to predict now whether the jurisdiction will be given to Moftec, or the Ministry of Finance or somebody else,' the source said.

The proposed changes also fall into line with recent state initiatives to tap the international market for funds to clean up non-performing assets. China Cinda Asset Management, the debt-settlement arm of the China Construction Bank, has announced the first swap giving a foreign company an equity stake in a domestic firm.

Actual FDI rose 11.74 per cent to US$7.97 billion in the first quarter, while contracted FDI, an indicator of future investment intentions, soared 44.34 per cent year on year, to US$15.99 billion.

Ms Ma has said Moftec is targeting a 5 per cent growth in FDI for the full year, with China's pending World Trade Organisation entry boosting investor enthusiasm.

Separately, she also disclosed Moftec was close to finishing its amendment of a catalogue of sectoral guidelines on foreign investment.

Revision of provisions of the three main laws governing foreign-funded enterprises, foreign equity and co-operative joint ventures also was in progress.



Beijing hopes better rules will help channel more money into the restructuring of state-owned enterprises