Though M&A at present contributes a small proportion of total direct foreign investments in China, officially estimated at around 10 per cent in recent years, it will gradually become mainstream, experts say.
Many M&A cases have not yet been calculated by the authorities, said Zhang Zhao, a Shanghai-based partner of Jones Day, a leading US law firm in the M&A field.
Zhang's law firm has been handling a number of big M&A deals, but details were not divulged.
Right now, foreign buyers are mainly industrial companies, private funds and other financial organizations.
Instead of making green field investments, which means setting up a new plant or entity to start business in China, these foreign investors prefer acquiring an existing Chinese business, which is more economical and efficient, said Zhang at a seminar held by GTJA Allianz Funds in Beijing on Friday.
Sources with China's Ministry of Commerce said in October the total cross-border M&A volume in China stood at US$35 billion in 2003 and the figure is expected to grow this year.
Statistics from the United Nations said the volume of cross-border M&As expanded by 3 per cent in the first half of 2004, which means that global climate is getting warmer for M&A.
M&As offer a short-cut to foreign investors to obtain a developed research network, as well as production, distribution, sourcing and reinvestment.
It is much faster than building a new plant and the buyers can directly enjoy the resources and market share of the buy-out target, said Zhang.
Moreover, Chinese authorities have expressed support to foreign strategic investors' participation in the restructuring of State-owned enterprises (SOEs) in most economic sectors.
Apart from SOEs, private companies are also becoming buying targets of foreign investors, said Zhang.
On the other hand, as the Chinese economy grows, more Chinese companies are eyeing overseas markets and making outbound investments in similar ways.
The recently clinched deal of China's largest personal computer maker Lenovo's buying the PC unit of IBM is such an example.