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State Weighs Laws to Attract Foreign Investment
China is considering revising its policies concerning cross-country mergers and acquisitions to attract foreign direct investment (FDI), foreign trade officials said.

Ma Xiuhong, assistant minister of foreign trade and economic co-operation, made the remark last week at a conference marking the release of the World Investment Report 2001 by the United Nations Conference on Trade and Development (UNCTAD).

She said there would be some revisions to existing laws and regulations concerning mergers and acquisitions in the near future geared towards allowing China to use this new FDI model under the present legal framework.

Ma said China's FDI growth is likely to exceed 10 per cent this year given that China's contracted FDI - a major part of this year's FDI - saw a robust growth last year and in the first half of this year.

"We estimated the growth to stand at 10 to 15 per cent this year, but considering the FDI growth in the first eight months, which is up 20.79 per cent from last year's period, we have been rather conservative," she said.

"I think we can realize our estimated growth this year," she said, adding that China has not seen a 10 per cent annual FDI growth since the Asia financial crisis hit in 1997.

Considering the increasing importance of international mergers and acquisitions in global FDI growth, Ma said China has been researching the possibility of ushering in the new FDI policy.

Over 95 per cent of China's FDI is directed towards building new enterprises, but the UNCTAD report shows that the proportion of this traditional pattern in total FDI has been dropping while mergers and acquisitions increased by 50 per cent last year from the previous year.

However, Ma cited two reasons explaining why it was not yet time to introduce the mergers and acquisitions framework in China.

First, China has few enterprises that can be included into the global strategy of multinational companies, she said, adding that most of the mergers and acquisitions that have taken place so far were between developed countries.

Second, China still has limitations on the opening of the telecommunications, finance, State security, petrochemical and media industries - the hot sectors for international mergers and acquisitions.

Ma insisted that it was still necessary to maintain these limitations.

China's present legal system also makes it very complicated for foreign investors to conduct mergers and acquisitions in China, she said.

China examined over 1,500 laws, regulations and documents concerning foreign trade last year and found that over 500 of them should be eliminated, around 200 should be revised according to World Trade Organization (WTO) rules, and over 20 new regulations should be laid down.

Ma noted that China will strive to complete the revision and drafting before the end of this year, and laws concerning foreign-funded enterprises that did not adhere to WTO rules had been revamped.

UNCTAD report

The report by UNCTAD shows that global foreign direct investment increased by 18 per cent from 1999, reaching US$1.3 trillion in 2000. The dramatic increase in international mergers and acquisitions, which jumped 50 per cent to US$1.1 trillion, contributed heavily to the rise.

But FDI worldwide is expected to edge down this year - the first time in the last 10 years - on reduced mergers and acquisitions, and the world economic slowdown.

The report warns that developing countries must make more efforts than developed countries to attract foreign investment this year.

Zheng Zhihai, director of MOFTEC's foreign trade research institute, said it was important for governments of developing countries to better co-ordinate the relationship between foreign investors and local enterprises.

(Business Weekly 09/26/2001)

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