China to Further Boost the National M&A Market

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Nov. 29 – Last week at the eighth “China M&A Annual Conference” held in Shanghai, leaders from the top Chinese financial institutions expressed hope for the implementation of multiple financial policies to buttress the further development of China’s M&A market.

The conference invited political leaders, investment and finance professionals, M&A corporate pioneers, scholars and professionals to join the discussion. Liu Xinyi, vice president of Shanghai Pudong Development Bank, mentioned during the meeting that China’s M&A market has already come to its “golden time” as global economics recover. During the first half of 2010, China ranked second (following the United States) as an M&A buyer acquiring US$7.4 billion in assets. Just two years ago, China was not even among the top 10.

Representatives from financial institutions and the central bank emphasized that China should diversify its financial tools to support M&A enhancement. Fang Fenglei, president of Hope Investment Management, called for more flexible M&A policies. He says instead of releasing a single option for M&A loans, China should encourage the involvement of various equity capitals during M&A. He even suggests the government should encourage enterprises to launch high-yield debt to provide investors with more options.

An attendant from China’s Central Bank holds a more prudent attitude towards M&A loan release. Ling Tao, vice director of Bank of China’s Shanghai branch warns of the credence risk of enterprises after the M&A. He believes it is urgent to intensify the training of M&A professionals as well as qualified fund managers and the development of M&A consulting agencies. He also mentions that China should try to attract some experienced overseas consulting agencies to set up good examples for the domestic agencies.

The conference reveals China’s ambition to motivate Chinese companies to “go out” and participate in overseas M&A. This is compatible with the message that a series of recent Chinese policies indicate: China is eager to develop its domestic industries by learning from foreign invested enterprises, both hardware-centric (e.g. technology) and software-centric (e.g. management skills).

Chen Zongsheng, vice secretary-general of the Tianjin government, believes it is the best time for overseas M&A because China has just recovered from the financial crisis while the asset price overseas still remains low. Ling Tao also mentions China’s effort to ease overseas M&A by improving the fluidity of the yuan in both offshore and domestic markets. In June this year, China enlarged the area coverage of yuan settlement in cross-border trade and started to allow qualified foreign institutional investors to invest in the inter-bank bond market.

Common Chinese people seem to be more interested in how M&As are going to impact the position of state-owned enterprises (SOEs). Massive amounts of Sina twitter users commented on Economist Wang Fuzhong’s twitter posting on November 26, saying the monopoly of SOEs must be changed. Other twitter users expressed interest in seeing how M&A is going to reform the inefficient management of SOEs and indicated China’s “Anti-monopoly Law” should work towards breaking the SOE monopoly instead of inconveniencing M&As.