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The China Column: The only way is up in M&A

China’s State Council recently laid out long-anticipated rules for national security reviews of foreign M&A deals. The committee will review transactions within the defence, agriculture, energy, resources, infrastructure and technology sectors because these are considered of strategic interest to Beijing.

Many of you will recall Coca-Cola’s bid to acquire Huiyuan Juice back in 2009. The deal was rejected because Chinese regulators were concerned it would crowd out smaller firms and eventually create a monopoly in China’s consumer market.

Truth be told, China is not the only country that has stopped international M&A deals for national security reasons. There have been several acquisitions that the United States and Australia have blocked for similar reasons, Huawei Technologies’ proposed takeover of American company 3Leaf Systems among them.

In overall terms, the new Chinese rules should not stop too many M&A deals, so Chinese investment bankers should not be too concerned about potential loss of income at this stage.

In fact, we are likely to see an increasing number of M&A jobs based in China in the near future. Chinese firms’ passion for M&A deals originates from their globalisation goal. According to consultancy Grant Thornton, the proportion of mainland firms seeking an international M&A deal increased to 26 per cent in 2010, up from 17 per cent the year before.

Benefits such as access to new markets, acquisition of new technology, and brand awareness are the top-three motivations for Chinese companies seeking an international platform, says the Grant Thornton research.

Investment bankers in China should be optimistic about their future. As activity levels in equity capital markets, debt capital markets and M&A rises, there will be more deals to execute, regardless of potential intervention by regulatory bodies.

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