China to encourage foreign M&A
Updated: 2006-06-28 11:43

China will encourage foreign companies to use mergers and acquisitions to carry out investment in the country, a Commerce Ministry official said in comments published on Wednesday.

The assertion by Hu Jingyan, head of the ministry's Services Trade Department, feeds into a growing debate over whether the country has been ceding too much control in its industry to foreigners.

"We will encourage foreign companies to use the method of mergers and acquisitions to carry out investment," a report posted on the ministry's foreign direct investment Web site ( cited Hu as saying in a recent speech.

Hu also said that the ministry would encourage domestic companies, especially private ones, to expand their cooperation with foreign firms to improve their international competitiveness according to the report, originally published on the news portal

Hu's comments come amid growing concerns by some officials that China could be hurting its future competitiveness by selling major assets to foreign companies at cheap prices.

Hong Kong's Wen Wei Po newspaper reported earlier this month that China would tighten screening of and impose new curbs on foreign acquisitions of heavy industry firms.

The article, which was later published on the Chinese finance ministry's Web site, said a ministry-level committee under the cabinet would be set up to conduct the screenings and that new restrictions would be imposed on foreign purchases of controlling stakes in strategic industries including steel.

Acquisitions take up a large portion of the foreign investment flowing into China, which overall amounted to US$60.3 billion in 2005.

Many analysts think the concern over growing foreign influence was behind the recent stalling or blocking of some attempted acquisitions. 

In one of the latest such controversies, Chinese machinery maker Sany Corp. said earlier this month that it was prepared to challenge U.S. private equity firm Carlyle Group for control of Xugong Group Construction Machinery Co.

Carlyle agreed last October to pay US$375 million for 85 percent of Xugong, and insists the deal will go ahead. But it has not yet obtained Chinese government approval.

Xugong said last week that it remained committed to the deal with Carlyle.

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