Mergers & Acquisitions

China-Swiss deals at three year low but rebound expected after 19th Party Congress sets policy

PUBLISHED : Wednesday, 27 September, 2017, 7:51pm
UPDATED : Wednesday, 27 September, 2017, 11:03pm

China’s capital controls have caused overseas acquisitions between China and Switzerland to drop to their lowest level in three years but the head of a Swiss chamber of commerce believes deal activity will rebound after Beijing clarifies economic policy at its Party Congress next month.

The value of merger and acquisition transactions between Swiss and mainland Chinese companies fell to US$793 million in the first nine months of this year, according to Thomson Reuters. That was substantially lower than the US$48.66 billion for all of last year and the US$4 billion in 2015, but still above 2014’s US$518 million and US$593.3 million in 2013.

“China’s capital controls on outflows is a challenge as this policy creates uncertainty. Swiss companies want to do business in a safe and predicable manner,” Felix Sutter, president of the Swiss-Chinese Chamber of Commerce told the South China Morning Post during an interview in Zurich.

“The capital control policy is a problem as Swiss companies worry if the Chinese buyers would be able to get the finance from banks or if they can get approval to take the money out of the country to complete the deal.”

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

After witnessing significant capital outflows last year, Beijing last November introduced a number of measures to curb mainland companies from buying overseas assets and increased scrutiny on mega deals.

Last month, the State Council issued further guidelines that banned “irrational overseas investment” in property, sport clubs, hotels, films and entertainment, but encouraged investment in technology and other projects that can help develop their core business.

Sutter said he thinks the recent guidelines to ban irrational investments would benefit Swiss companies as they would be ideal targets for mainland firms.

“Swiss companies are very rational. We do not do short-term speculation. We have a lot of innovation companies while we have a lot of manufacturers which produce high quality products. This fits the new Chinese policy of companies [only] buying rational investments,” he said.

China’s outbound investment to further grow after the party congress, says PwC

Sutter also believes the upcoming 19th Party Congress on October 18, which will confirm any leadership changes as well as approve political and economic policy, will remove uncertainty and provide a more predictable business environment.

The Swiss-Chinese Chamber of Commerce, a non-profit organisation funded by its 800 members, was set up 37 years ago with the mission to establish dialogue between the business sectors in Switzerland and China. The chamber’s upcoming seminar in Zurich next month, focusing on the digital revolution, will be attended by mainland firm such as China Construction Bank.

Sutter, 57, also a partner with consulting group PwC, has conducted business in China for decades. He and his Chinese wife have previously lived in Beijing and Singapore.

“Switzerland has a long term relationship with China and was among the first countries to recognise the People’s Republic of China. We do not like loud diplomacy or any aggressive promotion but we have been working hard to develop business relationships with China for the past few decades,” he said.

ChemChina, Syngenta clinch US antitrust approval for US$43 bn deal

Two or three decades ago, the chamber’s work was mainly helping Swiss firms invest in mainland China.

“However, the trend has changed over the past five years with more Chinese companies conducting mergers and acquisitions in Switzerland to expand their business,” he said.

In the past few years the large Chinese players have invested in many sectors in Switzerland, such as biotechnology, manufacturing, finance and hospitality.

The biggest deal came last year, when China National Chemical paid US$44.25 billion to acquire Swiss-based Syngenta, a manufacturer and wholesaler of agricultural chemical products.

The largest deal involving a Swiss firm investing in a mainland Chinese company was food giant Nestle’s US$1.698 billion deal with Guangzhou confectionery maker Hsu Fu Chi International in 2011.