Government Supervision of M&A Decisions by State-owned Enterprises in China

Lucio B. Pitlo III

Abstract

In China, as a socialist market economy, the state performs an important role in the economy not only as a regulator but also as an active market player through the creation and maintenance of state-owned enterprises (SOEs). In the past, means of production were in the hands of the state. But since the introduction of market reforms and the opening up of the economy to private capital and foreign investment, non-state participation in the economy continue to grow and SOEs were made to compete with one another, as well as with private businesses. In the course of these reforms, some SOEs were sold, went bankrupt, or were consolidated to enhance
efficiency and competitiveness contributing to the development of the “survival of the fittest” mechanism among SOEs (Li, 2003). This is a check against complacency and poor performance and, at the same time, provides incentive to innovative, competitive and performing SOEs. Consolidation of SOEs through mergers and acquisitions (M&As) is seen as one avenue by which the state economy is being reformed. Hence, the state, through such government authorities as the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), ensures supervision and management of SOE activities, including in their M&A activities at home and abroad.


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