China economy

Outbound investments will grow despite challenges: China Everbright CEO

Chen Shuang, in his address to the China M&A Forum, says companies will continue to seek deals abroad despite stricter scrutiny from Beijing and that signs for the future look promising

PUBLISHED : Thursday, 19 October, 2017, 3:15pm
UPDATED : Thursday, 19 October, 2017, 10:59pm

Technology, consumption upgrade and Belt and Road Initiative are expected to account for a sizeable chunk of outbound Chinese investment in the next few years, said the head of China Everbright on Thursday.

Chinese outbound investment will continue to be “the big trend” despite a spate of challenges, including tighter regulatory scrutiny, Chen Shuang, chief executive officer of China Everbright, the Hong Kong listed arm of the state-owned conglomerate China Everbright Group, told the China M&A Forum 2017 in Shanghai, in his keynote address.

“Chinese consumers are increasingly showing a stronger consumption demand, such as on films and entertainment, and are readily willing to spend,” he said and that this should boost confidence in the growth of consumer related sectors.

China Everbright has also teamed up Sequoia Capital, a US venture capital firm and Tencent, one of China’s biggest internet companies, to cash in on the trend of consumption upgrade, Chen said.

China’s domestic consumption picked up momentum in September, reflected by a retail sales rise of 10.3 per cent, up from 10.1 per cent in August, according to data from the National Bureau of Statistics on Thursday.

He also said on the sidelines of the forum that there were already some signs of loosening regarding outbound investment.

China “is likely” to encourage some government-backed institutions to let yuan sail outbound and there could be a policy to allow direct outbound investment soon, he said without elaborating.

Outbound investments still encouraged, despite Beijing’s curbs on ‘irrational’ deals

China ramped up capital outflow scrutiny last year and has issued policies to try to control irrational outbound investment, particularly cross-border merger and acquisition deals.

The State Council in August formerly endorsed the scrutiny on paper by listing categories where outbound investments were encouraged, restricted and banned. Property, hotel, entertainment and sports club come under the restrictive sectors and investors need special approval from Beijing.

China’s outbound merger and acquisition deals slumped 35 per cent year on year in the first three quarters of 2017 to US$95.9 billion, according to data from Mergermarket.

On top of tighter capital outflow scrutiny from regulators, Chinese investors could also be confronted with difficulties including financing overseas and national security scrutiny in investment destination nations.

Chinese firms’ deal making set back by Beijing and Washington’s intense gaze

With tighter scrutiny at home, Chinese buyers are also faced with a burden to assure jittery foreign sellers concerned about regulatory issues.

Chinese buyers could face an average 5 per cent to 10 per cent deposit, or break-up fee, from foreign buyers against the backdrop.

“Over the years, it has been noticed that deposit requirements have become stricter,” said Huang Min, deputy general manager, merger and acquisition office, Guotai Junan Securities.

Outbound Chinese merger and acquisition deals might be delayed but are unlikely to stop, he said, noting that he has seen a strong demand from Chinese listed companies to seek outbound deals.