With a 185% increase in deal value, up to US$35 billion, China took second place after Australia in mergers and acquisitions in the first nine months of 2004 in the Asia-Pacific region excluding Japan, according to Dealogic which tracks M&A activity. Australia saw US$58.2 billion in M&A transactions over the period. Top China deals included acquisitions by China Telecommunications and China Mobile (Hong Kong) of 10 provincial networks each from their parent companies, and HSBC's 19.9% stake in Bank of Communications. Mainland transactions included more foreign investment than any other country in the first nine months, with 389 deals worth US$15.6 billion, a fourfold increase over the corresponding period a year earlier. Analysts said a continuing rise in offshore acquisitions by Chinese firms would drive M&A activity as mainland companies seek to acquire technology, distribution and new products.

With word of new bad loans at China Construction Bank (CCB), officials had to tell prospective investors the bank would not be receiving government bailout cash after the bank goes public. Last December, CCB and the Bank of China each got US$22.5 billion, drawn off the mainland's foreign-exchange reserves to write off non-performing loans to clean up their books ahead of market listings. As reasonable as the new no-bailout rule might appear, analysts said investors could end up demanding a lower valuation.

International Finance Corp, the World Bank's investment unit, said it would nearly double the percentage of mainland investments in its portfolio. China assets stood at 4.5% in June and could rise to 6% in 2005. The IFC has invested about US$385 million in Mainland China, which accounts for nearly half of the company's East Asia and Pacific investments. An IFC official said two-thirds of mainland money is invested in the industrial sector, the balance in financial services and investment funds. The IFC, he said, would next be looking at opportunities in China's construction sector.

Hong Kong banks, which have lobbied to conduct trade-related yuan business, could be permitted to do so. Mainland officials responded favorably to the proposal made during a recent visit of Hong Kong bankers to Beijing, but said they would hold off on a decision to allow Hong Kong banks to issue ATM or debit cards to customers living on the mainland. The Hong Kong delegation, which held separate meetings with Vice-Premier Huang Ju, China Banking Regulatory Commission Head Liu Mingkang and People's Bank of China Governor Zhou Xiaochuan, was led by Hong Kong Monetary Authority Chief Executive Joseph Yam.

China Development Bank (CDB) started marketing its US$1 billion equivalent bond in Singapore, laying the ground for a sovereign issue next month that could raise as much as US$2 billion. The senior unsecured CDB issue will be split into a US dollar 10-year tranche and a long, euro-denominated, five-year tranche, maturing in 2010, sources said. Exactly how big each of those tranches would be in the end depends on demand. The issue is rated A2 by Moody's Investors Service, A-minus by Fitch Ratings.