In 2016 it took Chinese companies less than four months to surpass the record $145,7 billion of overseas deals they announced in 2015. The amount surpassed 208 US$ bn.
Already in 2015 China outbound foreign investments – ODI- did surpassed inflow of foreign direct investments – FDI -from abroad. Chinas Statistical Bulletin of ODI has reviled a data for 2015; 145,7 bn.US$ outflow from China as investments abroad. For the same period inflow of FDI was only 135,6bn US$. This really does not corresponds to the forecasts of many think tanks, including The Economist Intelligence Unit ( See picture below). Neither the amounts (smaller than predicted) nor the proportions were adequate. Generally, ODI has grown up till 18% in 2015.
China has made for example energy acquisitions across the world, with the biggest being Cnooc Ltd.’s 2012 agreement to buy Canada’s Nexen Inc. for $14.3 billion. In recent years, it has started buying more consumer goods companies, with a $4.7 billion deal for U.S. pork producer Smithfield Foods Inc. in 2013 and in 2015- $821 million purchase of Italian soccer team AC Milan. China has also aimed in technology industries making it a national priority, by purchases like an IBM server business and chip designer Spreadtrum Communications Inc. Some other spectacular examples are Chinese companies now own: Pirelli tires, Volvo cars, Weetabix cereal, the Inter Milan soccer team, New York’s Waldorf Astoria Hotel and the Hollywood studio behind Jurassic World. Since economic growth slows at home corporate China continues unprecedented shopping actions.
What is significant recently, private companies account for 65,5% of the total ODI. Private firms are the leaders, both as the amount invested and number of mergers and acquisitions –M&A-abroad and private acquisitions overseas reached 75,6% of total Chinese foreign purchase.
Regional distribution of Chinese ODI proves consequent regionalization focused on Asia following Chinese international economic strategy.
Before 2013, China’s overseas investment was dominated by state-owned companies acquiring iron ore deposits in Australia, energy producers from Canada and copper mines in Africa. More than half of the purchases were of energy and commodities companies. Now private entrepreneurs are buying literally everything while government-backed buyers purchase chipmakers and crop technology. Over the time changes in ODI industrial diversification is showed below.
That growing elasticity is making Chinese businesses a more powerful force in the mergers and acquisitions (M&A) , particularly in Europe, which has accounted for nearly half of China’s overseas takeovers this year.
Among others it also included potential acquisitions by : China National Chemical Corp.’s $43 billion takeover of Switzerland’s pesticides producer Syngenta AG, which would be the biggest-ever foreign acquisition by a Chinese company; Tencent Holdings Ltd. led an $8.6 billion deal in June for Finnish video-game maker Supercell Oy, and China Oceanwide Holdings Group Co. will buy U.S. insurer Genworth Financial Inc. for $2.7 billion. Chinese aviation and shipping conglomerate HNA Group has bought total foreign assets around 17bn US$ in 2015.
The last deals provoked Financial Times head-lines frightening article 25th of October alarming EU and USA authorities to take some actions.
However, M&A professionals say a new generation of skilled and smart managers is emerging from the world’s second-largest economy. They were educated abroad or have worked in international firms. They understand the concerns about China and know they need to move carefully. There are also arguments that Chinese investment should be embraced and some reports found that Chinese takeovers had saved many American firms from bankruptcy and that most had resulted in expansion.
There are some conclusive questions;
First question – why acceleration of Chinese private ODI occurred recently? While observing private investments slowdown inside the country we can partly understand the situation. (See picture below)
Many private companies have abundance of money but are not spending it inside the country. They are aware of the overcapacity in many industries from coal mining to solar-panel making and construction. Local governments are reluctant to give up their most promising projects to private investors. Many officials are suspicious of private firms in spite of official support of PPP (Public-Private-Projects). There are suggestions that private companies had neither the ability nor the capital but the facts are against it. Private companies simply aggressively started to invest abroad.
Second question; Is China able to keep buying at this increase of rate and for how long?
At the moment the answer is – yes – unless something gets in the way. Financial system in China is becoming flexible and giving easy lending to private companies. Chinese banks and financial institutions lent nearly 950 billion Yuan ($142 billion) in August 2016 — more than double as in July. During the same month, formal and informal lending activities collectively totaled 1.47 trillion Yuan, nearly triple that seen in July. Private investment, however, has failed to keep pace with the boom in lending, companies does not invest inland, thus they try to invest abroad.
The growing number of deals is attracting close government scrutiny within China and around the world. But it is just happening without any legal actions and credentials yet.
After; China Daily, September 23;2016