News Analysis: Chinese companies’ overseas M&A growing at normal speed

BEIJING, April 19 (Xinhua) — The Ministry of Commerce (MOC) on Tuesday denied that Chinese companies were on a global buying spree and said the speed of their overseas mergers and acquisitions (M&A) was “appropriate and normal.”
“It is an overstatement to say Chinese companies are ‘buying out the world’ as such a claim confuses finalized deals with those that are pending approval,” said MOC spokesperson Shen Danyang at a news conference.
In the first quarter (Q1) of 2016, cross-border M&A value rose to 324 billion U.S. dollars, 14 percent higher than Q1 of 2015, while volume dropped 10 percent to 1,202 deals due to the economic slowdown in China, the potential exit from the EU by the U.K., volatile equities markets and the fall in commodities prices, according to the quarterly cross-border M&A index released by international law firm Baker & McKenzie on Tuesday.
Overseas M&A deals by Chinese companies in Q1 was 16.56 billion U.S. dollars, a far cry from the 113 billion dollars cited by some reports, Shen said.
Instead of the rumored 100 billion dollars, Shen said that the worth of overseas M&A deals by Chinese companies last year was 40.1 billion dollars, a mere 6.2 percent of the world’s total M&A market value.
Baker & McKenzie pointed out that outbound deals from China covered a number of sectors including chemicals, business services and consumer goods, revealing a desire to access advanced manufacturing techniques and technological know-how to build global brands.
The biggest deal of Q1 2016 was the takeover of Swiss agrichemical company Syngenta by state-owned ChemChina for 45.8 billion U.S. dollars, as it attempts to boost its agricultural output in light of increased food consumption by the growing middle classes.
Although Chinese companies have increased transnational acquisition in recent years, their M&A and China’s overseas investment were both in the early stages, Shen said.
According to Shen, Chinese overseas investment only accounts for 3.4 percent of the world’s total, while the figure for the United States is 24.4 percent. China trails behind other developed economies such as the United Kingdom, Germany, France and Japan.
Overseas M&A by Chinese companies create win-win results, he said, citing the acquisition of AMC Entertainment by Dalian Wanda Group in 2012. The deal helped AMC turn losses into profits the same year, and be listed on the New York Stock Exchange the subsequent year, while some 1,100 new jobs were created in the United States.
“We are seeing a shift in Chinese investment from emerging markets to developed economies, and from energy and natural resources to technology and financial services, as Chinese companies target brands, talent and other assets that help increase their competitiveness at home and abroad,” said Zhang Danian, chief representative of Baker & McKenzie’s Shanghai office.
“We expect this trend to continue for the rest of 2016, as China’s economy stabilizes and the country transforms from a low-end manufacturing-led economy to one that focuses on consumption and services,” Zhang added.
Shen proposed more government support for Chinese companies to help them with overseas M&A as they still lack experience of dealing with cultural differences and policy hurdles.  Enditem



Leave a Reply