The recent relaxation of foreign currency controls will help Chinese companies, which have been plagued by overcapacity and fragmentation, to grow faster and to expand their overseas presence.

After China's entry into the WTO regime, it has been gradually opening up its domestic markets to foreign companies. To maintain the tempo and to defend itself against the competitive threats, consolidation among domestic companies is on the rise. Whether it is the inflow or outflow of investment, China's M&A activities are on the upswing.

On the one hand, inward investment is accelerating as foreign companies are vying for a share in the potentially lucrative Chinese market. On the other hand, the consolidation among the domestic companies (which were otherwise fragmented) is heating up in order to protect their profits, pricing power and market share. In the first half of 2006, mainland companies have been involved in M&A deals which are worth $62 bn-double of what was recorded for same period in the previous year.

The ongoing regulatory reforms along with the rapid economic development are fueling both industry consolidation and cross-border M&A activity. The country's M&A regulatory framework is evolving rapidly and is creating lucid and investor-friendly environment. For instance, the recent regulatory reforms not only allow foreign companies to buyout their joint venture partners and acquire private enterprises, but also to acquire State-Owned Enterprises (SOEs) and listed companies. Against this background, experts say there should be another record year for Chinese M&As, with bigger and bolder moves by Chinese companies both overseas as well as in the domestic market.

The Analyst Magazine, China Corporations, Foreign Companies, World Trade Organization, WTO, Mergers and Acquisitions, M&As, Foreign Direct Investment, FDI, Global Markets, Asset Management, Indian Economic System, State-Owned Assets Supervision and Administrative Commission, SASAC, State-Owned Enterprises, SOEs.