Foreign investors are targeting listed companies in industries where the state formerly banned or restricted foreign investment or those with competitive edges in their respective sectors, which may ultimately cause a loss of state assets, economic observers said.

Due to an immature market mechanism and lack of clear-cut regulations, international money brokers are likely to cash in on China's market opening and bring about risks to the national economy, said Prof. Yan Wu with the Financial Institute of Jiangxi University of Finance and Economics.

According to Dr. Ye Qin, with Guangfa Securities Company Limited, companies in sectors where foreign capital was formerly restricted or banned, such as aviation, communication, transportation and power are likely to become the focus of overseas investors, who can take advantage of the existing facilities and equipment and expand the manufacturing capacity and market shares.

"Companies with competitive edges in their respective industries will be targeted by foreign investors, too," said Ye. " Eight out of ten acquisition cases that have occurred recently fell into this category."

According to the market analyst, foreign investors would also select companies who have established equity interests cooperation previously, since it may reduce the cost for seeking, planning, negotiating, property evaluation and legal advising, and meanwhile, minimize the risk of assets restructuring later on.

As for the mode of acquisition, foreign investors may choose to purchase non-negotiable shares of Chinese listed companies by agreement.

However, Prof. Yan Wu warned that the rising tide of acquisitions may bring impending trouble.

"China should watch for the speculative acquisition by international floating capital, which would pose a threat to the stability of China's economy," he said.

He said that foreign giants may grow to monopolize certain key sectors, with their expansion of market shares after acquisition.

"The acquisition may result in the loss of state assets", said Yan. "Some listed companies are eager to shrug off their plight by bringing in foreign capital and technology, so they underestimated the value of their stock shares and transferred them to the foreign investors at a low price."

The benefits of medium and small stockholders may be hurt after the acquisition, he said.

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