China continued to see more mergers and acquisitions (M&As) last year as foreign companies increasingly turn to the activity to expand their market positions in the country, rather than depending on organic growth or building new capacity.

According to a report by the AmCham released yesterday, inbound acquisitions of Chinese companies by foreign firms were in the vicinity of $20 billion last year, accounting for nearly one-third of the total foreign investment in China.

The report said most companies that pursue acquisitions in China do so primarily to increase market access and to enlarge their domestic customer base and distribution network. These factors, it said, are present in almost every deal and are driving the growth of foreign M&A activities in China across most sectors.

Another important motivation is the acquisition of low-cost capacity that improves the competitiveness of the foreign acquiring company, both in the domestic market and in global export markets, according to AmCham.

In a survey conducted by the organization, 47 percent of the respondents said they had considered acquiring a Chinese company in 2006, 23 percent attempted to carry out an acquisition, and 10 percent had successfully completed an acquisition.

In 2007, 24 percent of the respondents planned to make an equity acquisition of a local company, while 17 percent planned an asset acquisition.

Besides inbound acquisitions, larger Chinese enterprises are also reaching out to acquire overseas companies and assets in industries like energy, natural resources, technology and manufacturing, boosting the outbound Chinese acquisitions of foreign companies, which grew sharply in 2006 and by some estimates were in excess of $10 billion.

The most highlighted M&A deals, however, were often driven by foreign private equity funds, which are raising billions of dollars to acquire and restructure Chinese firms.

This money is being spent in the financial sector on banking and insurance deals, at the larger end of the manufacturing sector and increasingly in the retail sector.

Such deals are highly visible to the public and are drawing increasing government scrutiny that in many cases results in lengthy delays in the approval process.