With the depths of the financial crisis increasing in the West, rumours have surfaced of Chinese companies arriving to take large shares of Western enterprises at knock down prices. It is the banks that appear most attractive to Chinese investors, with Morgan Stanley recently believed to be in talks with China International Trust and Investment Company, CITIC. It is no secret that the Federal Reserve in the US has been encouraging China to invest in US banks in order to alleviate the risk of the financial meltdown that looms over the West’s banking system. Despite the latest flurry of news on the subject, China’s interest in foreign mergers & acquisitions (M&A) is not something brand new.

The continuous economic boom that has taken place in China over the last several years has seen an intense increase of M&A activity in the country. Today M&A is recognised as common and important feature of the country’s economic landscape, with a number of Chinese banks seeking larger and more ambitious deals, and Chinese firms increasingly looking to invest overseas.

As reported by China Daily, from 1993 through 2005, Chinese banks made an average of about one cross-border acquisition per year. Most deals were valued at under $20 million. Since then, Chinese banks have made 11 outbound M&A deals - five of which were worth at least $1 billion - and they have good reasons to continue their venture abroad. There are plenty of benefits for Chinese companies who invest in foreign companies, such as the ability to follow customers overseas, extend service offerings, import skills into China, diversify risks, increase scales and lower costs.

And it is not merely a one way street when it comes to the Chinese M&A market. As pointed out by a recent report, the M&A route has the potential of offering foreign investors a feasible method of entering the fast expanding China market. Reuters recently ran a story on the top global logistics firm United Parcel Service (UPS), which is one foreign institution that hopes to buy a firm in China in order to claim a foothold in the market. Looking for acquisitions within the world’s fourth largest economy, the firm attempts to drive growth beyond a U.S. market that currently accounts for more than half its revenue. UPS will be opening two $180 million transport hubs in China and aims to nearly quadruple its staffing there in the next few years, hoping to serve increasing demand for delivery services within a relatively untapped market.

However, with the current financial crisis we may be looking at China to come to the rescue of many familiar big name banks and enterprises. No longer will it be American and European companies looking for a slice of the Chinese market, but Chinese companies buying into the Western markets at fire-sale prices.

Related research: Merger and Acquisitions Report of China Securities Industry, 2008