China grows in favour as deal centre in Asia

Country sees an 18.7pc jump in transaction value in the first half, with domestic mergers and acquisitions leading the way in the region

PUBLISHED : Monday, 01 September, 2014, 4:21am
UPDATED : Monday, 01 September, 2014, 4:21am

China-related investments, including cross-border and domestic deals, showed strong growth in the first half of the year, accounting for the bulk of transactions in Asia-Pacific.

The total value of these deals, including mergers and acquisitions, rose 18.7 per cent to US$183.1 billion from a year earlier, PricewaterhouseCoopers said. The tally includes China's overseas investments, foreign investment into China and deals within the country.

A report from Mergermarket also showed China was the biggest market for mergers and acquisitions in the region, with deals worth US$128.4 billion in the period.

PwC said overseas investments from mainland China grew 49 per cent to US$34.6 billion in the first half, while its outbound investments through Hong Kong soared 59 per cent to US$9.2 billion.

The Mergermarket report said: "China was the most favoured market for [mergers and acquisitions] in Asia-Pacific. With 574 deals worth US$128.4 billion, accounting for 43 per cent of deal value in the region, [China] overshadowed the second-largest jurisdiction, Australia, with 246 deals valued at US$44 billion." The report covered only deals within each country.

Despite the growth, PwC partner David Brown said overseas investments by state-owned enterprises were flat, due to reforms in the sector. But this would lead to large deals in future, he said, citing oil major China Petroleum & Chemical Corp's plans to sell a stake in its retail unit, Sinopec Sales. The deal, which has attracted 37 Chinese and international bidders, could be worth 100 billion yuan (HK$126 billion), he estimated.

State firms were increasingly building their presence in Hong Kong as a platform for outbound activity, Brown said. "It makes sense to have them in Hong Kong because the [yuan] is not convertible and it's more tax-efficient," he said.

The total value of overseas mergers and acquisitions by Chinese firms jumped 40 per cent to US$51.5 billion year on year in the second quarter, said Morning Whistle Group, a mainland provider of information on cross-border deals.

Wei Jianguo, China's former commerce vice-minister, said that with such strong growth in deals, the country's foreign direct investments and outbound deals combined would exceed those of the United Stated by 2030.

"China will be the world's liquidity centre," said Wei, currently the vice-chairman of the China Centre for International Economic Exchanges, an economic research and consultancy association.

Brown said the US, with an estimated US$926 billion of inbound and outbound investments in the first half, was still far ahead.

Jean-Marc Blanchard, of the Wong Centre for the Study of Multinational Corporations, said it was not certain China would overtake the US on investment flows. He noted that foreign investment in China was not growing as fast as before amid concerns over government scrutiny.

Julian Chang, associate dean of the Schwarzman Scholars Programme at Tsinghua University, said China last year accounted for only 8 per cent of global cross-border mergers and acquisitions, which totalled US$737.8 billion.

China's combined foreign direct investments and outbound investments might surpass those of the US at some stage, but not necessarily by 2030, Chang said.