China warns WTO entry will not lead to merger boom overnight

Published November 5th, 2000 - 02:00 GMT

Foreign companies should not expect mergers and acquisitions in China to become easier overnight after the country's entry into the World Trade Organization, state media said on Sunday. 

 

Cross-border alliances face major obstacles as the stock market is not fully opened to foreign investors, the China Daily Business Weekly reported. 

 

"A nod to transnational consolidations will not come quickly as it is closely linked with the gradual opening of the capital market," the paper said, citing Ma Xiuhong, assistant minister of foreign trade. 

 

Mergers and acquisitions make up just a small part of total foreign investment in China, according to the paper, which said precise figures were not available. 

 

This means the country will remain out of step in international finance since 87 percent of foreign direct investment worldwide was in the form of transnational mergers and acquisitions last year, according to the United Nations Conference on Trade and Development. 

 

Foreign companies will not be able to freely buy Chinese stocks until the government decides to open up its capital account. 

That could take longer than most companies would like, as a central bank official recently was quoted as saying China will liberalize the capital account "before 2015." 

 

More generally, China also lacks the legal framework to make large-scale mergers and acquisitions possible, the paper said. 

 

Assistant Minister Ma was quoted by the paper as saying the government is preparing new laws and regulations to improve its administration of cross-border mergers and acquisitions. 

 

But the laws that are under preparation will also be characterized by the government's go-slow policy in the field, Ma warned. 

"As a developing country, China must be very prudent in framing relevant laws and rules," she said. 

 

Despite the government's cautious attitude, Wu Suyan, a researcher with the Development Research Center, a state-run think tank, said she expected mergers and acquisitions to pick up after China's WTO membership and the further opening of its economy. 

 

In the past, cross-border alliances have been hampered by the government's tight controls on sectors such as energy, autos, telecommunications and finance, she said. 

 

The growth of local companies, previously too insignificant to join ranks with large foreign enterprises, will also help mergers to take off, she predicted.— (AFP)  

 

© Agence France Presse 2000  

 

© 2000 Mena Report (www.menareport.com)

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