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THE INFLUENCES OF FOREIGN CAPITALS’ MERGERS & ACQUISITIONS ON CHINA’S INDUSTRY SECURITY

Time:2014-03-13 Hit:195


THE INFLUENCES OF FOREIGN CAPITALS’ MERGERS & ACQUISITIONS ON CHINA’S INDUSTRY SECURITY


          According to the definition of industry security [8], the following standards can be employed to assess whether Cross- Border Mergers & Acquisition influences industry security: whether closely related to national security; whether closely related to the fundamental needs in people’s life; the technological level of certain industry; correlation degree among different industries ( impacts on other industries and influences on employment as well as economic growth; ecological environment factors (such as paper-making industry which is not quite significant in national economy but plays an important role in ecological environment); whether characterized as natural monopoly industry, whether an important strategic resource and so on.


A. Positive Influences:

• Improving Employees’ Quality; Foreign corporations usually emphasize employees’ quality training, hence contributing to the improvement of Chinese employees’ quality. Foreign investment will provide better wages, treatment, working conditions, as well as social welfare, compared with that of Chinese enterprises to attract more excellent employees to their corporations. In addition, many Cross-Border enterprises have set training bases in China to give their employees necessary training and further education, improving their overall quality to a large degree.

• Increasing Industrial Capital; As one of the important channels of direct foreign investment, Cross-Border Mergers & Acquisition plays an active part in the increase of China’s industrial capital. According to the statistics provided by the Ministry of Commerce, there has been a stable growth in the number of newly established projects (enterprises), the sum of contracted foreign investment and the actually-utilized sum in the eastern, middle and western parts of China since 2000.

In 2005, 44001 foreign-invested enterprises were approved to be newly built, involving $ 189.06454 billion worth of contracted foreign capital and $ 60.32469 billion worth of actually-utilized sum, providing a solid foundation for China’s economic development.

• Improving Overall Industrial Management Level; After many years’ operation, foreign enterprises have formed an orderly management system. Therefore, when an enterprise is merged by a foreign enterprise with a high management level, its old system will give way to a new one, hence having its management efficiency improved. With great efforts, the management of both the merged enterprise but the merging one will be improved a lot.

• Optimizing Industrial structure; Cross-Border Mergers & Acquisition is of significance in facilitating the paces of state-owned enterprises’ reform and recombination, promoting the adjustment of national economic strategies, improving China’s industrial structure and regulating and developing China’s capital market [6]. In the past, due to China’s planned economy, many units formed their fully-equipped but isolated system, resulting in a large amount of over duplicated projects as well as the destruction of reasonable economic systems and coordination. In addition, because of the small and dispersed scale, their centralization was not advanced enough. For instance, in 2003, China ranked first in beer output in the world with a record of 25.4 million tons while only 3 beer manufacturers had an annual output of over 1 million tons. Mergers & Acquisition can help to promote the centralization of production and capital, strengthen enterprises’ competitiveness at the market, form a complimenting and coordinating relationship among large, middle and small enterprises as well as a reasonable labour-division pattern. Objectively speaking, on one hand, the entry of Cross- Border corporations will do a lot to improve an industry’s overall capacity. On the other hand, it will also have great impacts on Chinese enterprises.


B. Negative Influences

• Endangering National Security and People’s Livelihood. Some industries involved in Cross-Border Mergers & Acquisition are related to national security or the fundamental needs in people’s life. In October 2006, Carlyle Funds bought 50% of the shares of Xuzhou Construction Machinery Group at the price of 1.8 billion Yuan. Taking the previous large number of machinery enterprises bought by foreign capital into consideration, we can draw the conclusion that the control of foreign capital in the machinery industry has gone to a dangerous edge because the production of many militarily machinery parts will be dominated by it. In recent years, foreign capital has frequently merged China’s manufacturing industry, banking industry, circulation industry as well as the high-tech industry. Once these industries closely related to the national economy and people’s livelihood are controlled by foreign investment, China’s base of independence in the economy as well as politics will be destroyed totally.

• The Loss of Intellectual Property Rights. If Chinese enterprises are merged by foreign capital, we will lose not only our national brands which were established with great efforts but our capacity in independent research and development. A nation’s well-known brands are the soul of its national enterprises as well as the foundation of its industrial development. By Mergers & Acquisition, foreign capital has succeeded in weakening the foundation of China’s industrial development as well as getting rid of its competitors. Of course, this will influence China’s industrial development and security. As is well known, technology is not only the result of the industry but the core power determining the development of industrial competitiveness. After Mergers & Acquisition, foreign capital will gain the core technologies of the merged enterprises as well as restrict their R&D activities.

• Influencing Industrial Control. When investing in China, Cross-Border corporations usually adopt a pattern of “joint venture--pushing out Chinese enterprises-- foreign-owned--oligarchy monopoly”.

          Although at the beginning of joint ventures and Mergers & Acquisition negotiations, Chinese enterprises have dominant shares, Cross-Border corporations will take advantage of their strengths in capital, technology and management to increase their investment and expand their shares and finally ask for the ownership of the whole enterprise. After absorbing the leading enterprise in a certain industry, Cross- Border corporations will employ the strategy of “the big fish eats fingerling” to merge or acquire other middle or small-scaled enterprises of this industry, hence controlling China’s market and monopolize the whole industry. As a result, China’s industry security will be endangered.

• Strengthening the Imbalance of Regional Economy.

The regional imbalance of China’ economic development influences the distribution of target Chinese enterprises for Cross-Border Mergers & Acquisition, and then, the obvious disparity in the spatial distribution of Cross-Border Mergers & Acquisition also influences the development of China’s regional economy. Let’s take G.D.P., for example, the disparity in G.D.P. of East China, Middle China and West China is getting wider. Compared with East China, the G.D.P. total of Middle and West China was respectively 59% and 40% of that of East China in 1980 while it dropped to 31% and 27% in 2004. This shows the increasingly wider disparity among the three areas in China.


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