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May 2002
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| MAGNIFYING GLASS |
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International Giants Find Shortcut to Chinese Market Via Buy-outs
(April 25, 2002) 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.
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.Source: People's Daily
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