Foreign investors and private companies in China should join the restructuring of the country's State-owned enterprises (SOEs) and will be assured of a fair and sound legal environment, officials said yesterday.

Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), said the Chinese Government plans to loosen control of State-monopolies to allow more private investors and boost competition.

China wants private investors to participate in mergers and acquisitions with SOEs, which is part of the country's economic restructuring plan, Li said at a mergers and acquisitions summit organized by SASAC and the United Nations Industrial Development Organization (UNIDO) in Beijing yesterday.

To facilitate the practice, China will establish a modern property rights system to oversee the flow of State-owned assets and clarify rights and liabilities, he said.

It will also speed up the withdrawal of poor-performing enterprises or those with low competitiveness.

Meanwhile, more lenient policies will be adopted towards foreign investment in Chinese enterprises as they enjoy wider access to the Chinese market, said Li.

The legal and regulatory framework has been one of the main concerns for foreign investors, who have to tackle tough issues like the evaluation of the State assets to be transferred and the arrangement of lay-offs if they buy into or take over SOEs, said Hu Jingyan, director of Foreign Investment Department of the Ministry of Commerce.

But such legal construction is catching up in China and more policy adjustments are in the works to update the rules and make them more in par with market practices, Hu said.

He also said more detailed regulations affecting foreign companies are being drafted.

As China's economic reforms gather momentum, mergers and acquisitions are also on the fast track. Transactions have increased by 70 per cent annually over the past five years, official statistics say.

Domestic private investors have been a major force behind that growth.

According to a survey by the All-China Federation of Industry and Commerce in 2002, 8 per cent of Chinese private companies had conducted merged or acquired SOEs and another 13.9 per cent had such plans. Presently, the overall private capital in China is around 2.8 trillion yuan (US$338.1 billion).

Compared to that, foreign investors were much slower to enter the market. Foreign investment in merger and acquisitions accounts for about 5 per cent of the country's overall foreign investment now, said Li Rongrong.

And existing cases are still mainly connected to domestic enterprises that play top in their industries.

"But the signals from the Chinese Government herald more changes in mergers and acquisition policies that would attract more foreign investors,'' said Fred Hu, managing director of Goldman Sachs (Asia) L.L.C.

"It is a very positive progress that the authorities have adopted a very pragmatic attitude towards the SOE restructuring and introduced more market-driven rules and standards,'' he said.

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