According to a report released yesterday by UK-based The Mergermarket Group, an M&A intelligence service provider, Chinese outbound M&A activities are set to increase this year.

The report said 2009 would be "one of the best years" for buyers in the global M&A arena. Asset prices have declined due to the deepening economic crisis; and in many cases, owners are being forced to sell assets to pay down debts as bank and market financing dry up.

The two primary motivations for Chinese companies considering foreign acquisitions are to expand overseas market share and to acquire technology know-how, according to a survey included in the report.

China is currently looking for productive ways to use its nearly US$2 trillion in foreign-exchange reserves to support companies in their overseas development, Fang Shangpu, deputy director of the State Administration of Foreign Exchange, recently said.

In the largest ever overseas investment by a Chinese company, the country's biggest aluminum producer Aluminum Corp of China (Chinalco) will inject US$19.5 billion into Rio Tinto Ltd, the London-based miner announced on February 12. This will increase Chinalco's stake in the miner to 18 percent, from the 9 percent it held earlier.

However, some analysts also warned of the potential risks in overseas M&A activities. "Chinese firms must be careful with those assets on sale and avoid bringing home 'new burdens'," said Feng Lei, a researcher with the Chinese Academy of Social Sciences.

(China Daily March 4, 2009)