China remains Asia's top market for financial services mergers and acquisitions (M&A ) because of underlying economic growth conditions, an annual survey by PricewaterhouseCoopers (PwC) suggests.

The opening of the financial sector late last year has also contributed to the faster pace of restructuring among domestic financial institutions and has prompted foreign banks to acquire stakes in domestic firms to gain a foothold in the Chinese market, PwC analysts said.

M&A activities are expected to expand from the banking and insurance sectors to stock broking and asset management, said the survey of 230 senior financial services executives across Asia.

At a press conference to introduce the report, PwC analysts warned that the fierce competition for assets in China requires discipline in pricing deals as China's financial services market becomes increasingly complex.

According to the survey, 47 percent of respondents said they will be involved in M&A activities in China either as principals or intermediaries in the next five years, down from 52 percent in 2005, said Matthew Phillips, PwC Transactions partner in Shanghai .

Ten percent of respondents said they would engage in M&A activity in Japan and 28 percent in Hong Kong .

In the commercial banking sector, corporate banking will continue to be the primary profit driver and opportunities include note financing, trade finance, treasury and cash management. Retail banking is possibly the most attractive banking segment in the medium term, the study said.

City commercial banks will be major targets of M&As, said Andrew Li, a transaction services partner of PwC in Shanghai. In the past few years, Huishang Bank and the Bank of Jiangsu have combined a number of city commercial banks with provincial banks, and foreign lenders are showing increased interest to own stakes in these smaller Chinese banks.

In a separate PwC poll of 40 overseas banks actively engaged in the Chinese banking market - including HSBC, Citibank and Standard Chartered Bank - respondents envision growing opportunities in China, and only a third said the market is overcrowded.

The 40 banks surveyed employ more than 16,700 people, and the number will surge 113 percent to about 35,700 by 2010, with 25 banks more than doubling in size.

Editor: Yan