The 2007 Fifth China M&A Annual Conference was held on June 9th, 2007 in Tianjin; it was sponsored by the China M&A Association and TalentsMagazine,. Following are remarks presented by Mr. Jindu Cui, vice mayor of Tianjin.

Mr. Jindu Cui:

Thank you very much. Thanks for Mr. Wei Wang’s warm welcome. Mr. Wang has provided great support to the China International Private Equity Forum. He has actively organized and arranged the conference from the beginning to the end. I would like to show my gratitude to Mr. Wang and to each person who is involved in the conference. Mr. Wang is the host of the panel and also the host for the entire Forum.

I would like to use this opportunity to share my views on M&A capital market and government functions on M&A issues.

As we all know, enterprises began to increase in number at the end of the 19th century. However, since the 20th century, few enterprises were developed through organic growth and most of them grew through mergers and acquisitions. The M&A phenomenon first appeared in the United States where most M&A activities occurred. Early M&A happened between 1897 and 1903, when 2,864 M&A cases were signed with the total transaction value amounted to $6.3 billion. A century later, international M&A is the trend, and a single transaction value can reach $100 billion. Tremendous changes have taken place in just one century.

M&A produced a great number of multinational corporations and international economic organizations which have advanced the global market integration. M&A reflects the economic characteristics and covers many aspects of business. It is not merely a single economic phenomenon, but a complex social phenomenon, accelerating the progress of manufacturing.

China is the first country to use paper currency (as early as the Song Dynasty). At that time, the development of currency and real estate mortgage drove the growth of commercial credit and international trade. Industrial capital transformed to finance capital. Due to heavy emphasis on agricultural industries, the banking industry did not grow. Europe started to focus on growth in commercial industry in the mid century and shaped a business center around Italy and the Mediterranean. After significant geographical discoveries, cities around the Atlantic including London, Antwerp and Amsterdam became international centers for commerce and finance.

In 1865, France, Belgium, and Switzerland formed the Latin Monetary Union. They issued gold francs, the currency with the longest circulation history. Sterling bloc, Dollar bloc and Franc group were established in 1931, 1934 and 1939, respectively. In 1944, the Bretton woods system was created, using gold standards to establish the US dollar international currency system. After the break up of the Bretton woods system in 1971, the United States started to issue paper currency instead of using gold. The change improved the U.S. economic growth and strengthened its position as an international economic center.

After the Second World War, Japanese economy grew rapidly. In 1985, based on the Plaza Accord, Japan loosened its monetary policy. In the 90s, the economical bobble burst, and the internationalization of Japanese yen was stagnated. Between 1979 and 1998, the euro was created. The birth of the euro explained a phenomenon. In May 2004, Euro clearing price was higher than that of U.S. dollars. If any one currency’s clearing price exceeds that of the U.S. dollar, it indicates some dramatic changes in the world economy. We believe that the Chinese yuan could become one of the dominant international currencies in the near future.

Global capital markets can be classified as regional market, national market and international market. From a product prospective, capital markets can also be categorized into banking market and government debt and corporation debt market. Capital markets have domestic currency, foreign currency, commodities, futures, and derivative markets. Stock exchanges and equity exchanges are specific forms of multi-level capital markets. Venture capital, mutual fund, private equity and hedge fund play important roles in capital markets. Capital markets attract resources to reflect capital supply and demand. Capital markets also play a fundamental role in allocation of resources.

The evolution process from a natural economy to a commodity economy to a market economy is synchronous to the evolution from indirect financing to direct financing and then to equity financing. In a natural economy, indirect financing takes place to manufacture products. Commodity economy makes direct financing possible and equity financing is common in market economy. Developing and improving financing avenues can realize a company’s potential, enhance manufacturing methodology, and completely change the production purpose, methods and results.

The market reflects economic development and the supply and demand of products. Government represents subjective factors of the society and public management and only provides public products, including law, policy, system and other social norms. In a market economy, we should maximize the positive effects of market and government.

China's economic modernization and internationalization are a fundamental development process. In the micro aspect, finance capital and industrial capital need to connect in order to manufacture product and services. The intermediate view is to change the method of production so the market itself and market developments are aligned. In the macro perspective, market should play its role to integrate government and market. When developing stock exchanges, we must develop transaction markets outside of stock markets.