fishlittle.jpg[UPDATED]Whether you are on the outside looking in or the inside looking out, China is now firmly on the M&A map.

Mergers
and acquisitions accounted for less than 4% of of foreign direct
investment in China in 2002. By last year ,it had grown to over 21%,
according to Thomson Financial.

However, opposition to foreign
takeovers has intensified recently while the M&A activities of
Chinese companies — both in China and abroad — shows no signs of
slowing.

The Financial Times says there are several reasons for this growing groundswell ($) of opposition in China to foreign takeovers. Revenge for the US blocking CNOOC's bid for US oil company Unocal may play a part.

But
the opposition possibly has more to do with China's growing confidence
that its domestic industries can go it alone without the need for
foreign technology and skills.

That confidence manifests itself
in aggressive corporate activity by Chinese companies. Credit ratings
agency Standard & Poors predicts record M&A activity this year
as Chinese companies flex their muscles on both national and
international stages.

The ratings agency told Xinhua Finance that it expects to see bigger M&A deals
involving Chinese companies in both the international and domestic
markets as they seek to diversify through overseas expansion or
consolidate their domestic market positions via foreign investment.

China's
seemingly insatiably appetite for raw materials and energy will drive
M&A deals in in the natural resources sector. S&P expects to
also see significant outward investment in the areas of hi-tech,
telecommunications and manufacturing.

By contrast, inward
investment by foreign companies will be focused on the areas of
banking, cement, automotive, retail and chemical industries.

China's banking industry is notoriously fragmented and inefficient, and western banks have long been looking to buy into it.

The
latest to flourish its cheque book is Commonwealth Bank of Australia,
the country's second largest bank, which told Xinhua Finance that it “continues to look for opportunities“. (Australia is an honorary member of the west as far EngagingChina is concerned.)

CBA
already holds a minority stake in Hangzhou City Commercial Bank and is
moving to a similar sized stake in one of China's largest city
commercial banks, Jinan City Commercial Bank. Its fund management arm,
Colonial First State Global Asset Management, has set up a JV in China,
the first Australian fund manager to do so.

Nevertheless, CBA
complains that the restrictions that cap foreign ownership of Chinese
banks to 20% are holding back its China plans — and no doubt those of
other western banks.

As the FT notes, banking is a politically sensitive sector in China.

Citigroup
of the US and Société Générale of France know this only too well. They
are both leading consortia that have submitted $3bn-plus bids for the
heavily-indebted Guangdong Development Bank. But the bids have been on
the table for more than a year amid a dispute over how much control to
give foreign investors.

Apart from banking, S&P predicts a wave of consolidation in China's steel industry — see this EngagingChina
post — and basic industries such as aluminium and cement. Other
sectors ripe for consolidation include real estate, retailing and
pharmaceutical industries, according to the agency.

($) subscription required

Technorati : , , , ,

email