For Jenny Ma, the vice-president of THTB Capital Ltd, one merger and acquisition (M&A) deal she has done sticks out.

Last year, she helped global energy giant Royal Dutch Shell buy a 75-percent stake in Tongyi, China's largest privately owned lubricant oil company.

"The deal made Shell the third-largest company in China's lubricants market," said Ma. "It also increased Shell's global finished lubricants volume by 8 percent, giving it approximately 16 percent of the global branded finished lubricants market.

"The Shell-Tongyi deal is a strategic market move for the foreign company in the Chinese market," she says.

China witnessed many M&As of this kind in 2006. For example, in October 2006 German chemical and medical giant Bayer acquired Topsun Science and Technology's over-the-counter cough and cold medicine business for 1.072 billion yuan, which is the largest M&A deal in China's pharmaceutical market.

"More and more multinationals are seeing China as their most important market. In order to increase their presence, M&As have become a key tool," said Ma.

"And this year, we will no doubt see more M&As, as more global companies hope to quickly boost their presence in the Chinese market."

Outlook

Last year witnessed a record number of M&As globally, with a total value of $3,870 billion, 29 percent more than 2005, according to consulting company Dealogic. And the Chinese market is the most vigorous in the world.

According to data supplied by M&A Asia, the number of announced deals in the first 11 months of 2006 on the Chinese mainland, Hong Kong and Macao climbed 30 percent compared with 950 in the whole of 2005.

The total disclosed deal value in the 11 months to November was $48.7 billion, compared to $54 billion for the whole of 2005.

Strong growth in China's M&A market will continue this year in the wake of sustained economic growth and the further opening of the domestic economy across a broader range of sectors, according to a report from PricewaterhouseCoopers (PwC) at the end of 2006.

"In my opinion, M&As in China will exceed $54 billion in 2007 if nothing unforeseen happens," said Xie Tao, a Beijing-based partner at PwC Transaction Services. "Domestic deals are likely to continue to grow, driven by accelerating industry consolidation."

In 2006, the largest announced domestic deal was Gome's 61 percent acquisition of China Paradise, its competitor in home appliance retailing, for $677 million.

The main sectors contributing to the increase were financial services, manufacturing and retail.

"This year, these areas will still see a lot of M&As, especially the financial sector," said Ma with THTB Capital Ltd.

"Because of several factors such as the bullish stock market and the higher renminbi value, more investors will be interested in China's financial industry," she said.

Regulation

Although China last year saw a boom in M&A deals, US private equity firm Carlyle's attempted takeover of Xugong Group Construction Machinery Co Ltd (Xugong), which was held up by the government, has drawn the most attention.

In 2005, Carlyle agreed to buy 85 percent of Xugong for $375 million the biggest acquisition move by a foreign investor of a controlling stake in a leading State-owned company.

The deal generated hot debate in China, with some analysts warning it would harm the nation's economic security.

In August, the Ministry of Commerce and other authorities issued new rules concerning the acquisition of Chinese enterprises by foreign investors.

"But in my opinion, the deal, which is a common practice among foreign investors in China, would not hurt economic security," said Ma.

According to Wang Zhile, director of the Multinational Enterprise Research Center under the Ministry of Commerce, although many people have raised concerns over the country's economic security as foreign investors' M&As keep increasing in China, the nation is seeing the greatest economic security in its history.

"Although large foreign buyouts are likely to face temporary delays in the approval process until the interpretation of new government policies and regulations is clarified, the implementation of the new policies and regulations will increase transparency and encourage further activity," said Xie with PwC.

(China Daily 03/07/2007 page7)