Chinese companies' overseas investments surging

Purchases of foreign companies surge this year, with mainland firms particularly active in the United States, Europe and Canada

PUBLISHED : Monday, 26 May, 2014, 10:08am
UPDATED : Tuesday, 27 May, 2014, 12:24am

Chinese companies are increasingly pursuing opportunities in higher value-added industries such as manufacturing, vehicles, IT and telecommunications.

As such, they are now more active in advanced economies such as the United States, Canada and Europe, which offer higher-value investments, said David Blumental, a Hong Kong-based partner at US law firm Latham & Watkins.

During the first quarter of this year, Chinese investment in Europe reached US$7.2 billion, exceeding the US$5.5 billion of Chinese investment in Europe for the whole of last year, according to Mergermarket, an international publisher of information on mergers and acquisitions.

Investment flows bring benefits for Americans, including job creation

Chinese investments in Europe in the first quarter outpaced US$5.5 billion of US investments there, according to Mergermarket.

China accounted for 11.6 per cent of total investments in Europe in the quarter, a big jump from 2.9 per cent last year.

Agriculture was the most targeted sector by Chinese investors, led by Cofco's US$2.9 billion acquisition of 51 per cent of Netherlands-based Nidera, said Mergermarket.

In America, Chinese firms spent US$1.36 billion on 26 deals in the quarter, with the number of acquisitions reaching an all-time quarterly high, according to a report by Rhodium Group, a US consultancy.

The US industries attracting the most Chinese investment were health care, real estate and IT. The biggest Chinese deal in the US during the first quarter was the US$290 million acquisition by Chinese medical device firm MicroPort Scientific of Wright Medical Group's OrthoRecon business.

More than US$8 billion worth of Chinese deals in the US are pending, including two potential mergers and acquisitions in IT equipment worth more than US$5 billion, said Rhodium. In comparison, Chinese investments in the US totalled more than US$14 billion last year.

Chinese investments in America exceeded US investments in China for the first time in 2012, according to the Ministry of Commerce. Chinese firms now employ more than 70,000 Americans, a sharp increase from barely 10,000 in 2007, according to Rhodium.

"These investment flows bring benefits for Americans, including job creation, and have the potential to be a major contributor to stronger US-China relations," Rhodium added.

Although energy and resources remain the dominant targets of Chinese overseas investments, a fast-growing sector for Chinese outbound investments has been technology, media and telecommunications.

Last year, the total value of Chinese overseas investments in this sector more than tripled to US$3.9 billion, according to a report by Mergermarket and Squire Sanders, a US law firm. This includes Citic Telecom International's acquisition of 79 per cent of Companhia de Telecomunicacoes de Macau for US$1.2 billion in June 2013.

In the consumer sector, Chinese investors made 32 overseas deals worth US$8.8 billion in 2013, almost double the value in 2012, driven by the multibillion-dollar acquisition of US pork producer Smithfield Foods by Shuanghui International, a Chinese meat producer now renamed WH Group.

"China's growing middle class has increased demand for foreign products such as coffee. We have also seen an uptick in Chinese buyers targeting wineries and vineyards, often purchased as status symbols," said Squire Sanders partner John Poulsen.

Another reason for the increase in Chinese investment in consumer businesses overseas has been the need for cash by many consumer companies in developed markets, says the Mergermarket-Squire Sanders report.

Last year, mainland and Hong Kong investors made 220 overseas deals worth US$68.9 billion, representing a 17 per cent increase in value from 2012.

Despite the slowing growth on the mainland, outbound investment continues to increase, according to Blumental.

Poulsen said: "[Chinese] overseas expansion has increased in recent years partially thanks to an increase in funding from state-owned banks to private sector companies."