Research On Domestic Enterprises Merged By Foreign Capitals

Under the new situation of economic globalization and China's entry into WTO, cross-border M&A (Merger and Acquisition) has emerged as the main approach of Foreign Direct Investment (FDI), which is the new trend in the flow of foreign capitals during recent years. However, M&A investment only accounts for a small proportion of China's total utilization of FDI, which is incongruous with the means of the international capitals' flow, and the Foreign Capitals' M&A of domestic companies is still in the process of institutional change. It is suggested that China should manage Foreign Capitals' M&A with rationality, while it adopt foreign capitals actively, reasonably, and effectively. Besides, to meet the tremendous challenges brought by the international companies' entry into Chinese market, Chinese enterprises must adapt to the new macro-environment, seek for a more reasonable development approach hi the course of the institutional change, and try to create a win-win situation. Therefore, integrating Chinese economy with international economy by M&A and cooperation with the multinational companies could be an appropriate method.In this paper, a standard analysis together with a positive analysis of companies' M&A was conducted, and the underlying reason and motives of M&A were thoroughly analyzed from different perspectives by applying the western M&A theories, especially the theories such as: Theory of Industrial Organization, the Transaction Costs Theory, the Institutional Costs Theory and the Institutional Change Theory. According to the institutional costs theory, whether an company should take the mode of direct entry into the market or transaction of the key factors of the property rights is subject to the transaction costs- the total institutional cost, of the institutional arrangement, that is, the one that costs less is the best choice. The Theory of Institutional Change explains that, in order to help domestic enterprises obtain the potential benefits during the process ofM&A, the country establishes fundamental regulations for M&A through innovation, establishment of M&A regulations, and formulation of rational and efficient M&A law. On the other hand, on the premise of reducing transaction costs, economic organizations will negotiate and transact with other firms, and establish sub-institutional arrangement, which helps foster the establishment of fundamental regulations, and as a result, further push the nation to rectify and amend M&A laws.The new tendency of international capital's flow and China's WTO membership will speed-up the process of the institutional change of Foreign Capitals' M&A, and, as a "political organization" beyond a nation, WTO has become a major impetus to the institutional change. Chinese government should perform the function of the political organization, and focus on facilitating the institutional arrangement, establishing a fair market order, breaking monopoly and protecting national economic security. The main institutional arrangers of the economic organization are the local governments, labor union, state-owned asset management corporations and enterprises involved in M&A. With the aim to improve the economic development of the local areas, help enterprises put through the many needed reforms, annihilate state-owned enterprises' losses, decrease unemployment rate, mitigate fiscal burdens, vitalize assets reserves, optimize and improve industrial structures, etc., the laws and policies that encourage Foreign Capitals' M&A have been formulated. Both the political and the economic organizations accelerate the institutional arrangement of M&A.In this paper, the M&A theories that derived from the four major economic theories were classified, and a new three-dimension system for the M&A motive was developed. The author of this article argue that the initial objective of M&A is the dimension of economy, management and development-strategy, while the ultimate goal is "economy + development dimension". In order to enter and occupy the Chinese market, as a special for...