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The Study of Chinese Resource-based Enterprise’s Cross-border M&A

Author: WangYiXuan
Tutor: LiHong
School: Dongbei University of Finance
Course: International Trade
Keywords: resource-based enterprises cross-border M&A issue measures
CLC: F271
Type: Master's thesis
Year: 2011
Downloads: 323
Quote: 0
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Abstract


At present, with the growing industrial capacity, the consumption of resources of all countries in the world increases. For a country especially those big countries in term of resource consumption, the shortage of resources would undermine their development of economy. At present, various countries give high priority to the security of resources especially the energy resources when conduct the foreign trade and deal with the relationship with foreign countries. As the development of economic globalization, the globalization of resources in the world is growing increasingly. All Countries has attached great importance to the exploitation of overseas resources and the competition for the resources in the global scope has entered into the climax stage.As a big country in terms of resource consumption, actually China is a country which seriously lack of resources, though on the face of it, China has vast territory and abundant resources. Domestically, the growth of production for resources are basically stagnant, however the demand for resource in our country are growing. In addition, to the exploitation condition of the resource product is unsatisfactory; the grade of the quality of the resource product is not high enough to meet the requirement of domestic resource-based enterprise. In short, there is big gap between the supply of and the demand for resources in China. Therefore, to satisfy the domestic demand for resources, our country has to import a lot of foreign resources. Take the oil and gas as example, according to statistics, nearly 60% of the oil and gas resources need to be imported to China, the foreign dependence degree is so high that it can hinder the development of our country’s economy. However, simply rely on imports can’t solve the present situation of the resources in our country. As is known to all, the allocation of resources in the world is extremely imbalanced, the resources our country shot of are concentrated in some foreign countries and areas, and the monopoly level of the world resources market is very high, these are the cause of the prices of resources in the world resources market are fluctuate, that has seriously limited the development of Chinese resources-based enterprises. In the past few years, the fluctuation of overseas resources price had cost Chinese resource-based enterprises a lot of money. In order to adapt to the trend of the cross-border A&M, solve our domestic resources problem, China should take the chance of actively participating in the international division of labor to make as much use of the world resources, our resources-based enterprises should positively "going out", to integrate the overseas resources. In recent years many resources-based enterprises in our country have adopted a merger way to integrate resources overseas, especially since the year of 2008, when financial crisis erupted, which caused parts of some foreign enterprise assets to shrink. In order to get out of the difficulty, those foreign enterprises have to lower their assets’prices and sell them, which provide the Chinese resources-based enterprises a good chance to obtain the overseas resources at a low cost and relieve pressure of shortage of resources.Observing the history of Chinese resources-based enterprises cross-border M&A, we can see that although our resource-based enterprises has made some achievement and the number of cross-border M&A is increasing, there are still some failure cases. Therefore, the research on Chinese resource-based enterprises’ cross-border M&A has both theoretical and realistic significance. From the theoretical sense, through the analysis of the characteristics and the reason of Chinese resource-based enterprises’cross-border M&A, it can provide the theory basis for our resource-based enterprises to conduct the future cross-border M&A; From the realistic sense, analyzing the opportunities, restricting factors and the risks when Chinese resource-based enterprises conduct cross-border M&A and giving the corresponding strategy will provide the Chinese resource-based enterprises some beneficial references.For this paper, by using the method of qualitative analysis, induce and deduction, it sums up the characteristics of Chinese resource-based enterprises’ cross-border M&A, and state the reason of Chinese resource-based enterprises’ cross-border M&A from tow aspect:from the international perspective, the world resources’scarcity trigger an international competition among all countries in the world for the resources, and many resource-based enterprises in the world further control the world’s resources which cause the resources’prices in the world market fluctuate, these all lead our country’s resource-based enterprises’cross-border M&A reasons; From the domestic perspective, Chinese domestic resources is short of supply, which cause the foreign dependence degree of imported resources become too high, these are all the reasons for Chinese resource-based enterprises’ cross-border M&A. In addition it is also helpful for Chinese resource-based enterprises to grow to be a multinational corporationThen this paper further analyzes the opportunities, restricting factors and risks of Chinese resource-based enterprises’cross-border M&A. This paper points out that the financial crisis to a certain extent reduce the costs of cross-border M&A, which provide Chinese resource-based enterprises opportunities; In addition, the healthy development of the economy of China in recent years, and the expansion of foreign currency reserves in our country, coupled with the policy support provided by Chinese government for the resource-based enterprises, all of these provides favorable opportunities for Chinese resource-based enterprises to conduct the cross-border M&A. But there still have some restricting factors and risks. The restricting factors include the following aspects:The management structure and system of Chinese resource-based enterprises have some defects, in addition the technical level of Chinese resource-based enterprises also has restricted the level of cross-border M&A, what’s more, our resource-based enterprises also lack of legal support from our government. The risks of our resource-based enterprises’ cross-border M&A mainly include the political risk and legal risk. The political risk is mainly refers to the state-owned enterprise background are vulnerable to foreign political forces, in addition, the third countries will obstruct our resource-based enterprise to conduct cross-border M&A, for the reason of guaranteeing its resources security and weaken the resources possession of our country. Legal risk is mainly refers to the host country set some the legal limits to the foreign resource-based enterprises.To cope with the restricting factors and the risks mentioned above, both the resource-based enterprise itself and the government need to make efforts. First of all, Chinese resource-based enterprises should chose the targets from a comprehensive perspective, attention should also be paid to the external environment, and the first choice shall be those countries have a stable relationship with China; In addition strengthening the public relations with the host country before conducting the cross-border M&A to reduce political risk; What’s more, speeding up the transition of modern enterprise system, enhance the international competitiveness of resource-based enterprises. For our government, the state needs to provide our resource-based enterprises a relaxed investment environment, and improve the related laws about cross-border M&A.The innovation of this paper is to introduce the concept of resource-based enterprises, and then summarizes the general characteristics, reasons and the problems faced of Chinese resource-based enterprises’cross-border M&A. However for the limitation of my academic level and the insufficient of the material and data, this paper also has certain deficiencies and defects.

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