The rejection will be a blow to SIA's efforts to gain a foothold in China's booming air travel market.

 

A deal between SIA and China Eastern – which has received approval from the Chinese government - would also have created a formidable rival to Air China on its home territory.

 

The Singapore Airlines bid had been backed by its parent company Temasek, the investment arm of the Singapore government, and had offered HK$3.80 a share for a 24 per cent stake in China Eastern in a deal worth approximately US$923.8 million.

 

Air China's parent company, China National Aviation Corp. (CNAC), said on Monday it was prepared to offer a rival bid of at least HK$5 per share if shareholders rejected the Singaporean bid.

 

Speaking to reporters after Tuesday's vote, Li Fenghua, China Eastern's chairman, expressed "great regret" at the outcome saying SIA remained the carrier's ideal partner.

 

He said the company would not consider Air China as a strategic partner, leading to speculation that China Eastern's Beijing-based rival could now move to absorb the company and herald the start of a major restructuring of China's airlines.

 

At present the market is dominated by three state-owned carriers  - Air China, China Eastern and the biggest, China Southern Airlines  - all of which have sold minority stakes to the public on the Hong Kong and Shanghai stock markets.

 

The intensifying battle comes amid rapid change in China's aviation industry, which is forecast to become the world's largest over the next two decades.