Political Factors That Affect The Cross-border Mergers And Acquisitions In China

Recently, particularly since the outbreak of the global financial crisis, the cross-border M&A by Chinese enterprises have seen a rapid growth with impressive results. Meanwhile, the rate of failure for Chinese enterprises'cross-border M & A is the highest in the world, and this leads to tremendous losses. The main reason for this is the increasing political interference from the host countries'governments. This paper is divided into three parts. The first part reviews the development process of China's cross-border M & A since it reform and opening up, and analyses its great significance to China's economic and social development. Combining the case studies of CNOOC's failed bid for Unocal Corporation in 2005 and China Aluminum's successful acquisition of Rio Tinto in 2008, the second part focuses on the three main causes for the host governments to set political obstacles on China's cross-border M & A. The first cause is the host governments' economic consideration, which makes them believe such cross-border M&A will disrupt free competition and result in monopoly in their domestic market. Secondly, they fear that the cross-border M&A will threat their own national security, especially their national economic security. The third reason is the western countries' ideological bias against China, and their wish to obstruct China's rapid development. The third part of this study raised three methods to avoid host countries' political interference in the process of cross-border M&A. With regard to the host countries' economic consideration, Chinese enterprises should get to know and strictly abide by the relevant laws and regulations of the host countries. In the face of host countries' national security examination, the relevant enterprises should actively try to win the host governments' support by a variety of means of international public relations. Confronting host governments' long-term ideological bias, the Chinese government should strengthen its economic diplomacy, establish a good national image in the international society, create a favorable international economic environment for China's cross-border M&A, and take concrete measures to encourage, support, guide and protect Chinese enterprises'cross-border M&A activities.