International Giants Find Shortcut to Chinese Market Via Buy-outs

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Last updated at: (Beijing Time) Thursday, April 25, 2002

International Giants Find Shortcut to Chinese Market Via Buy-outs

Since last October, more foreign buy-outs have taken place in China, which appears to become a new way for international investors to make inroad into the lucrative Chinese market.

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Last October, Alcatel, an ambitious international company, threw a shock in China's telecommunications market by taking control of a major local supplier, Shanghai Bell Co., through a successful buy-out.

Afterwards, Emerson, a U.S. giant, spent 750 million U.S. dollars taking over the whole electronics wing of Huawei Technologies, a top telecom products and services supplier in China.

A new way of foreign investment

Since then, more foreign buy-outs have taken place in China, a country that survived the Asian financial crisis and has witnessed a soaring influx of overseas capital over the past few years.

Buy-outs have become a new way for international investors to make inroad into the lucrative Chinese market.

Among the "Top 10 Buy-outs in China in 2001", chosen by the Global Buy-out Research Center of the Chinese Academy of Social Sciences, three were carried out by foreign investors.

Last year, foreign buy-outs accounted for six percent of FDI (foreign direct investment) in China, according to official figures.

In 2001, China absorbed 69.2 billion U.S. dollars of overseas capital, in contractual terms, and 46.8 U.S. dollars, in FDI, up 10 percent and 15 percent respectively, over the previous year.

A win-win deal

It is a win-win deal when an international giant buys out a local firm, while it is also a low-cost and quick formula for international companies to enter the Chinese market, says Liu Xiaodong, deputy general manager of the Shanghai Stock Exchange.

According to the expert, it takes one and a half or two years to create a new company, but a buy-out deal could be completed in merely three to five months.

Moreover, an international company could easily take over the market-share of a local firm through the buy-out while eliminating a local competitor.

Some local observers believe that foreign buyers are mostly interested in such industries as automobiles, retail sales, home electric appliances, banking and telecommunications, where cheap local labor is the most attractive factor.

Meanwhile, foreign investors are also eager to enter the real estate, medical and petrochemical industries, which are restrictive with tariff or non-tariff barriers.

Government encouragement

The government is encouraging more foreign buy-outs, in the State-owned economic sectors in particular.

According to the 10th Five-Year Plan (2001-2005), China will sell off the shares of State-owned companies, especially larger ones, to foreign investors, in a planned way.

Foreign buyers are allowed to take control of some state firms, except those that are of vital importance to the country's state security and economic life.

Zhang Xiaoji, director of the foreign research department of the State Council Development Research Center, observes that China's ongoing reform of State-owned enterprises has created more room for foreign investors to set up a new company or buy out an existing firm.

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