HONG KONG,  (Xinhua) -- The pace of merger-and-acquisition (M&A) in China is sizzling, though the rate of failure in the field is relatively high, says a report Wednesday published by the Economist Intelligence Unit in Hong Kong.

The report entitled "The great buy-out: M&A in China" said after a survey of 231 executives worldwide that 65 percent of the respondents believed merger-and -acquisition investments in China from foreign companies is set to rise over the next five years.

While half of the interviewee expected the same period will seemore Chinese companies merge with each other or invest in companies overseas.

Chinese-based respondents are even more positive about the M&A activities in China with six out of ten believe the numbers of M&Awill climb even higher.

However, the report pointed out that the failure rate of the M& A activities is also high because of the misunderstanding of business environment in China and the cultural conflict between different firms.

It said almost half of the respondents believed a poor grasp ofthe complexities of doing business in China is often a key reason for a merged or acquired company to founder. Three out of ten respondents blamed the poor merger results on the failure to achieve financial targets, lack of proper due diligence of the target-company, and poor protection of intellectual property rights.

Surveyed executives in the China-only segment, put a higher emphasis on failure to achieve financial targets and then a poor understanding of the operation environment.
An expert from Morgan Stanley warned foreign companies to do homework before jump into the promising and challenging market of China.

He said companies which want to have a successful merger and acquisition should "open their eyes" and "grasp as much information as they can and be well prepared for the cultural difference" they might have during the marriage between two companies.

According to the report, the financial sector, particularly the banks in China is the major attraction to foreign investment whichworth 9.7 billion U.S. dollars in completed acquisitions. It is because the Chinese government is now focusing on strengthening the fragile financial system and the further deregulation of the banking industry, said the report.

The expert from Morgan Stanley said the foreign investments pouring in the Chinese banks bring in not only capitals but also good practice and well designed financial products, which are veryhelpful to the relatively simple portfolio of Chinese banks.

The report also noted that lack of transparency at a target-company and retention of key talents are still the challenges in M& A deal that need to overcome.