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China’s Shortcut for Obtaining Core Technology from Foreign Countries: Mergers and Acquisitions

The debt crisis in the U.S. and Europe has given China new opportunities to merge and acquire foreign enterprises. According to China Review News on October 13, 2013, China has become one of the five largest capital exporting countries in the world. In 2012, Chinese investors invested directly in 4425 overseas companies located in 141 countries and regions with accumulated non-financial direct investments of US$77.22 billion, an increase of 28.6 percent over the previous year. In this new situation, China’s future cross-border mergers and acquisitions show the following trends:

  1. Since many countries view state-owned enterprises’ mergers and acquisitions as politically motivated commercial activities, more private enterprises are engaging in cross-border mergers and acquisitions.
  2. China’s demand for energy resources is growing rapidly. Of 45 types of bulk minerals that China needs for its development, by 2020, China will achieve self-sufficiency with only 6 of these types. China’s thirst for resources will drive China’s enterprises to get involved in cross-border mergers and acquisitions in more and more diverse industries (finance, IT, and tertiary industries) on a global scale, with the focus on oil, gas, mining, and chemical industries.
  3. In order to be effective in avoiding the high risks of the cross-border mergers and acquisitions, China has used and will continue to use the world’s leading professional intermediaries and foreign lawyers to provide consulting services throughout all of the acquisition processes.
  4. To merge and acquire advanced technology enterprises in developed countries is a shortcut to using legal means to obtain core technology from foreign countries. Therefore, China’s cross-border mergers and acquisitions will be mainly technology-oriented.
  5. To reduce acquisition costs, China will take full advantage of local capital in the foreign markets through the acquisition of listed companies for financing and will directly or indirectly attract investments in foreign capital markets.
  6. China will send its management teams to the merged companies overseas and will conduct post-merger cultural integration for the purpose of taking corporate control while maximizing the value of the acquired companies.  

Source: China Review News, October 13, 2013