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SCMP Reporter

Beijing is poised to announce rules to encourage foreign investment in state-owned firms through mergers and acquisitions, said a senior official of the State Economic & Trade Commission (SETC).

Besides enlisting foreign capital and expertise to improve its inefficient state sector, Beijing was also keen to raise funds for its cash-strapped social security system, SETC's deputy secretary-general Gan Zhihe told a conference in Hong Kong yesterday.

He declined to reveal the timetable for their introduction, but said: 'Right now, drafting of the foreign merger and acquisition rules has been completed and it is being submitted for review by higher authorities. They will be introduced very soon.'

Foreign fund inflows in China have leaned heavily toward greenfield investment but mergers and acquisitions have been growing in popularity in recent years with relaxed rules.

'Other than a few restricted sectors, I believe foreign investors should be allowed to acquire a stake or take over the entire company,' Mr Gan said.

His remark appeared to echo a report in China's Securities Times newspaper earlier. The newspaper reported that the state would 'selectively cede its controlling stakes' in state firms being restructured into shareholding companies to private and foreign investors.

The new rules, it said, would also apply to state firms being re-organised for a stock listing.

Mr Gan said the mergers and acquisitions must help raise funds for the national social security fund, set up as a fund of last resort to plug in holes in the provincial social security system. But he declined to reveal how the transactions would contribute to the fund, or whether the foreign investors would bear the burden.

Renowned mainland economist Liu Jipeng is among those who have called for foreign mergers and acquisitions as a means to reduce state holdings without causing havoc on the stock markets.

A Hong Kong analyst yesterday suggested that state shares in firms under restructuring could be moved first to the national social security fund, which would in turn sell them to foreign investors for cash.



Rules backing foreign stakes in state companies due soon