KELVIN WONG

China has overtaken South Korea as the second-most popular destination for companies looking for acquisitions in the Asia Pacific, as the value of cross-border merger and acquisition (M&A) deals on the mainland tripled in the first 11 months of this year over last year.

The value of mainland M&A deals involving foreign buyers had risen to US$18 billion this year from US$6 billion last year, a survey by KPMG and Dealogic found. Within the region, the number trailed only that of Japan, which recorded US$24 billion worth of such deals. Korea was third with US$12 billion.

In terms of the number of deals, the mainland topped the region with 326, nearly triple that of second-placed Japan and more than four times the number in Korea, which recorded 118 and 73 deals, respectively.

Gavin Geminder, KPMG head of corporate finance for Hong Kong and China, said that although he expected the number of mainland M&A deals to gradually slow, there would be "significant growth" next year.

"This is a really, really positive message for China's M&A market," Mr Geminder said.

"During the Sars epidemic there was nobody willing to travel to China. But since then the economy has been growing positively and the government has also relaxed a lot of regulations to help facilitate the growth."

He said the recovery of M&A activities had begun in the second half of last year.

The survey found other signs that the mainland's financial and economic integration with the rest of the world had gathered pace.

Cross-border deals, which also include mainland companies bidding for foreign assets, have taken a more important role and represented 56 per cent of deal volume in the country this year, compared with 48 per cent last year.

Adding transactions between domestic companies, the number of deals reached 642 and their combined value was US$27.1 billion, compared with 509 deals worth US$24.3 billion last year.

Mr Geminder said the numbers would go even higher by year-end - probably reaching 680 deals worth a combined US$33 billion - as more deals were scheduled to close this month.

However, despite being optimistic about the market's potential, he was cautious about the prospect of mainland companies becoming a force in international M&A activities in the near future.

"Most Chinese companies have other things to focus on at the moment, such as internal restructuring and raising the level of corporate governance. I think they still have some ways to go before they can compete with more established foreign companies for overseas acquisitions."

He also reaffirmed his confidence in the Hong Kong market and dismissed suggestions that Shanghai was ready to replace the city as the mainland's "window to the world" for M&As.

"Hong Kong is an international financial centre and Shanghai is pretty much a domestic market."