In the mid-1980s, China's government experimented with arranging mergers among state-owned enterprises in an attempt to enhance the efficiency of these enterprises. As market-oriented economic reform entered the 1990s, a wave of voluntary mergers and acquisitions involving the state-owned enterprises, collective enterprises, and private enterprises as well as foreign investors has swept the country.

This article provides a detailed description of the Chinese mergers and acquisitions market and seeks to serve two purposes: The first is to provide a starting point for understanding mergers and acquisitions activity in China as it figures into international investment markets. The other is to provide a rudimentary analysis of the advantages and disadvantages of China's approach to mergers and acquisitions, that is, its efforts to transform state-owned enterprises in a centralized planning economy into profit pursuing firms in a market economy. Given that research in the Chinese mergers and acquisitions market is virtually nonexistent, it would be essentially impossible at this point to present a complete economic analysis regarding the latter issue. The article instead is devoted mostly to the first point—that is, documenting what is taking place in China's mergers and acquisitions market and providing some discussion from the perspective of financial economists.

Turning briefly to evaluating the merits of China's approach seems important, however. While the Chinese mergers and acquisitions market has evolved out of several driving forces and serves multiple purposes, economists have taken a special interest in its role in privatizing or revitalizing state-owned enterprises. Researchers are looking to developments in China as particularly important for a couple of broad reasons. One is that the direct political motivation behind the emergence and development of the Chinese mergers and acquisitions market is the need to solve the problems of state-owned enterprises. The other is that the problem of how to revitalize these enterprises inherited from a centralized planning economy is one shared by the countries of Eastern Europe and the former Soviet Union. In light of the importance of this issue, it may be helpful to compare the Chinese mergers and acquisitions approach (along with some other measures) with Russia's privatization voucher program for revitalizing state-owned enterprises. Following that discussion is a description of the mergers and acquisitions market and a discussion of its economic significance in general.

This article has provided an introduction to the mergers and acquisitions market in China, placing the emergence of that market in the context of China's market-oriented economic reform. It attempts to analyze the direct and indirect driving forces relevant historical developments and current challenges to development of a strong mergers and acquisitions market. This article is divided into a few sections:

• China, Road Towards a Market Economy
• An Overview of China's Mergers and Acquisitions Market
• Driving Forces behind Mergers and Acquisitions in China
• Foreign Investors Participating China's Merger and Acquisition Market
• The Outlook of China's Mergers and Acquisitions Market

The development of mergers and acquisitions activity in China has played a positive role in revitalizing its inefficient state enterprises, attracting foreign investment, and rationalizing the industrial structure. The merger and acquisition activity has inevitably led to the privatization of some state and collective enterprises, which is still a sensitive ideological issue. While further development of the mergers and acquisitions market is important in restructuring and modernizing the industry of China, careful handling of many institutional deficiencies and social problems as well as political obstacles will be required to avoid major setbacks in the future. It is hoped that this article's broad overview of the development of China's mergers and acquisitions market will invite further study of this important dynamic in China's economic system.