A new report from the Organization for Economic Co-operation and Development (OECD) says that China should make the rules and regulations for cross-border mergers and acquisitions more open and transparent to attract more and better foreign investment.

The report charts the progress made by China in developing a regulatory framework for cross-border M&A in recent years. It notes that some progress has been made, and approvals procedures for M&A have been speeded up and new laws enacted.

But more needs to be done, the OECD suggests. “Foreign investment will help Chinese firms, particularly those that are state-owned, reduce indebtedness and get access to technology, marketing know-how and management techniques,” it says. This will give them the skills and expertise to expand abroad and better compete in the global marketplace, stimulating economic growth and development, the report says.

China’s regulatory framework for cross-border M&A remains a complex and incomplete patchwork of laws, regulations and policy decisions made by various ministries and government agencies. A lack of transparency, coupled with low standards of corporate transparency and disclosure, makes it difficult for potential investors to carry out due diligence to accepted international standards, the report maintains. Valuing the potential liabilities of a firm is especially difficult.

At the same time, the Chinese government continues to close off so-called “strategic assets” to cross-border M&A without specifying which sectors are defined as strategic, or why.

To address these issues and remove other obstacles to cross-border deals, the OECD recommends that China: streamline the approval process for cross-border M&A and make it more transparent; introduce a sound competition framework; further open its capital markets to foreign investors; encourage its firms to increase corporate transparency; and, relax foreign ownership restrictions.

The report also recommends that China pilot these recommendations in the North-East of the country before rolling them out nationwide. This region, China’s historical industrial heartland, has a high concentration of state-owned firms in need of restructuring and technological upgrading, as well as high unemployment and low productivity. Cross-border M&A could help rejuvenate the region’s economy, it proposes.