Chinese firms ‘to face tougher obstacles securing tech overseas’
Western countries more wary of Chinese ventures buying out foreign companies to secure advanced technologies, says Chinese think tank
China’s efforts to secure more advanced technologies in the United States and Europe through buying companies overseas will face greater problems this year as regulators in Western countries may place barriers on Chinese investment amid concerns over security, a government think tank in Beijing has warned.
Chinese overseas acquisitions are also set to slow as the authorities curb outbound investment to stem the flow of cash out the country after the nation’s currency has fallen in value against the dollar, according to a report by the Chinese Academy of Social Sciences and China Bond Rating.
Chinese companies have been on an acquisition spree in the US and Europe in recent years, mostly taking stakes in hi-tech firms as China tries to move its economy away from low-end manufacturing towards the production of higher-value products.
Takeovers are one of the most efficient ways to fill technology gap for China, according to the Outbound Investment and Risks Blue Book issued by the academy and China Bond Rating.
Protectionist sentiments driven by a global economic slowdown maybe on the rise in the West, the research said.
Calls for tighter screening of foreign investment have been increasing in Western countries amid concerns that they could lose their technological advantage if Chinese companies mount takeovers.
National security concerns have been the most common reason to veto purchases by Chinese companies during reviews by overseas governments.
Zhang Ming, one of the authors of the report, said Chinese companies could face more obstacles in purchasing advanced technology assets, especially when deals are linked with support from the Chinese government.
“Such difficulties will be more obvious in the future, especially when the total amount of such investment is increasing,” said Zhang. “When people are wary of what you are doing, containment will be reinforced.”
Zhang said Chinese firms might be more successful if the state-owned firms cooperate with private companies in overseas purchases. Working with local companies or taking smaller stakes in foreign firms might also be more effective, he said.
Wang Bijun, another author of the report and a research fellow at the academy, said Chinese companies should be more transparent when seeking acquisitions overseas.
This included detailing the source of their investment capital as well as stressing the benefits deals could bring to local people.
Chinese investment into the US exceeded American investment into China for the first time last year.
Most of the investment was in buying stakes in companies, such as Haier’s US$5.4bn buyout of GE Applicants.
According to a report by Ernst & Young, 164 Chinese companies bought or took over European enterprises during the first half of last year.
That compared to 183 Chinese takeovers in the whole of 2015.
Germany, France and Italy jointly presented a letter to the European Commission in February, asking the commission to review allowing member states the ability to veto foreign investment if they do not have equal market access. China was not named in the letter, but it was widely believed to be the target of the move.
Terrorism also remains a major risk for Chinese investment abroad, according to the Chinese research report, with foreign exchange risks and political disorder also among the top concerns for many mainland companies operating overseas.