China a key player in M&A market

China's snowballing foreign reserves should intensify its efforts to ensure natural resources, high technology and global brands through mergers and acquisitions in the global market, the central bank said in a report yesterday.

The Bank of Korea forecast the nation's foreign reserves will surpass $1 trillion this month after posting $954.5 billion at the end of July. The massive foreign currency holdings should prompt China to increase global direct investments despite a precaution against China's dominant position in the global M&A market, the BOK said.

"The Chinese government is expected to expand its investment in developing natural resources in Latin America, Africa and Central Asia because for China it is crucial to ensure oil and raw materials to sustain its explosive growth," said the report, which expounded on the latest trends and future prospects of China's direct investment.

Many industry watchers are closely following the recent global expansion of Chinese firms. Such moves to rise up the ladder in major industrial areas should intensify competition with Korean companies. They have excelled in technological prowess compared with their Chinese rivals so far.

China's foreign direct investment soared to $57.2 billion at the end of last year since its entry to the World Trade Organization in 2001. The aggregate foreign direct investment excluding the financial sector until 2000 was mere $3.73 billion.

Last year, the annual investment amount more than doubled to $12.26 from a year earlier. In 2004, the investment rose by 93 percent to $5.5 billion on year-on-year basis.

The number of foreign enterprises invested by China exceeded 6,400 at the end of last year, according to the BOK's report.

One of the significant changes seen in the latest deals involving China is that Chinese firms have opted to pursue M&As or strategic alliances rather than set up production facilities.

Lenovo, a major Chinese computer maker, for example, acquired IBM's PC division last year. The company is also considering taking over the troubled Korean PC manufacturer TriGem Inc. In Korea, Shanghai Automotive owns a 51 percent stake in Ssangyong Motor Co.

With the latest wave of high-profile deals, Chinese firms have become a key player in the global market. They made up 1.68 percent of overall global direct investments last year, up from 0.9 percent in 2004.

China has also been keen to acquire stakes in major energy development projects or oil companies. Last year, China National Petroleum Corp took over Alberta-based oil firm PetroKazakhstan for $4.2 billion.

(jungmin@heraldm.com)

By Kim Jung-min