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Going Global

China’s ‘going global’ enters new phase, with western firms starting to benefit from Chinese scale, innovation

‘The new message is Chinese companies can add China genes to these local firms and help transform them into international companies with a better growth story’, says JP Morgan’s head of investment in the country

PUBLISHED : Monday, 23 October, 2017, 8:33am
UPDATED : Monday, 23 October, 2017, 8:32am

Seventeen years after China launched its “going global” strategy to encourage domestic firms to invest more abroad, a new trend has emerged, with Western targets now starting to benefit from the rapid innovation and scale of the Chinese market, while at the same time becoming more appealing to global investors, said JP Morgan’s head of global investment banking in China.

Last Friday, French fashion retailer SMCP – bought by Chinese textiles giant Shandong Ruyi Technology in 2016 and the owner of the Sandro and Maje fashion labels – debuted on the Paris stock market.

Its initial public offering (IPO) came after the firm posted strong international sales last year and launched new stores on Alibaba’s e-commerce site Tmall.

Earlier this month, Pirelli, the world’s fifth largest tyre maker, relisted on the Milan stock exchange in one of Europe’s largest IPOs this year.

That was two years after China National Chemical Corp bought the firm in a deal worth around 7.1 billion (US$7.7 billion) and delisted it.

The subsequent restructuring has shifted its business focus to higher-margin premium tyres and increased relevant capacity in China, with Asia-Pacific achieving one of the highest levels of profitability last year.

“Chinese companies going global has moved to a new stage, where they help foreign targets tell a China story and achieve better global growth, to increase their appeal to global investors,” said Houston Huang, head of JP Morgan’s global investment banking in China, in an interview with the South China Morning Post. “This is the beginning of a new trend.”

Previously, many Chinese enterprises had been in hot pursuing of Western companies on an effort to buy natural resources, expand market share, or upgrade their technology.

But now it is more about Chinese firms gaining international expertise, Huang said.

“The new message is Chinese companies can add ‘China genes’ to these local firms and help transform them into international companies with a better growth story.”

Adding China “genes” includes leveraging Chinese partners’ expertise and helping investees expand into China, so the latter can benefit from the rapid innovation and scale of the market.

“China is growing into one of the world’s biggest consumer markets and is leading the world in some areas, such as e-commerce.”

After Ruyi’s acquisition, SMCP stepped up its global expansion, especially in China’s e-commerce sector. In 2016, it opened new stores in Shanghai, Chengdu, Shenzhen, and Hong Kong.

It also launched two online stores on Tmall.com, for its Sandro and Maje brands, separately. The move helped support a nearly 80 per cent jump in its global online sales last year.

JP Morgan advised on both the Pirelli and SMCP acquisition deals, and was global coordinator for their subsequent IPOs.

“A China story” can make an IPO become more attractive to investors, so foreign targets achieve good valuations, Huang said.

Zhong Shan, China’s Minister of Commerce, said last Thursday during the 19th party congress that China still encourages its enterprises to go global, after recent regulatory changes sparked concerns over a potential end of China’s acquisition binge abroad.

“There have been some structural changes in Chinese firms’ foreign investments, including a shift to buying more hi-tech and capital-intensive companies in developed economies,” he said.

“The quality of Chinese companies’ global expansion has improved.”

Besides, Chinese companies’ “contribution to the investees’ countries” have also increased, he added.

Chinese companies’ total overseas assets have grown to US$6 trillion to date, Zhong said.