To be completely honest, there are a lot more new WFOE's in China (Wholly Foreign Owned Enterprises) than new Joint Ventures (JV's) or mergers and acquisitions.  This, in my mind, is because the Chinese government is feeling more and more secure with letting foreign businesses operate freely (Some say the commies are too paranoid and there are probably no conspiracies by foreign companies to take over China.  They may or may not be overly protective, but there are plenty of money minded men who would have no problem with destroying the Chinese economy to make a buck.)

But I'm getting off point.  With the loosening of regulations, its easier than ever to start an independent foreign company in China.  So, as many large companies trust themselves more than Chinese companies, they start a WFOE.  Yet, even though the ratio of new WFOE's is growing faster than the rate of growth of M&A activity, well, here's my point in numbers: in 2005 the value of M&A deals in China increased 34% to $60.3 billion in a total of 857 deals.  A 34% increase in one year is no joke.  M&A is still a very viable option in China, even the best one depending on your circumstances.

Here's a good example of a well executed acquisition.  FedEx wants in on the express delivery market in China in the late nineties.  The Chinese government at the time has made it illegal for a foreign company to have a Chinese branch in the express delivery market.  So FedEx creates a Joint Venture (JV) with a Chinese company, DTW.  They helped DTW grow with Western management skills, resources, etc.  Now it is no longer illegal for a foreign company to have a distribution service in China.  So FedEx buys a well developed DTW.  Tada--instant market share.

And here's another change in regulation that makes it easier to do M&A in China.  Foreign companies previously could not buy "A" shares (only available to Chinese and Chinese legal persons).  Now you can buy them, with limitations of course (must hold the stock for three years, etc.)  So its easier than ever to purchase equity in China and thus easier than ever to acquire controlling stock in a company.

I think every paragraph of this entry has encluded some loosing or lightening or improving of regulations.  Add this continuously improving governmental process with a growing Chinese market and, voila--constant opportunity.

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