Across The Border

Why western countries are saying ‘no thanks’ to Chinese cash

A growing number of withdrawn deals and high-profile reviews points to a push-back against China’s rampant foreign investment

PUBLISHED : Tuesday, 22 November, 2016, 1:16pm
UPDATED : Tuesday, 22 November, 2016, 9:44pm

It’s been a huge year for Chinese overseas investment - but it also seems to have been a year of growing resistance to mainland money.

From Australia blocking the A$10 billion (HK$57 billion) sale to Chinese investors of Ausgrid, the country’s biggest energy grid, to the United Kingdom delaying approval of China’s 33 per cent stake in the Hinkley Point nuclear power plant, the increasing level of investment flowing overseas from the mainland appears to have ruffled some feathers.

There’s definitely more apprehension about Chinese foreign direct investment [FDI] than there was before
Geoffrey Gertz, Brookings

In Germany last month, economy minister Sigmar Gabriel reopened a review of the Chinese takeover of the semiconductor company Aixtron after a growing backlash to Chinese investment, while last week a United States congressional panel recommended all China state-owned acquisitions of US companies be banned.

“It is definitely a trend,” Geoffrey Gertz, a post-doctoral fellow covering global economy and development at research and policy institute Brookings, told the Post over the phone from the United States.

“There’s definitely more apprehension about Chinese foreign direct investment [FDI] than there was before. There definitely have been more reviews, but it’s also worth noting there hasn’t necessarily been a bigger trend in projects being cancelled.”

China overtook the US as the world’s largest assets acquirer in the first nine months of this year for the first time, with volume reaching a new high of US$173.9 billion, according to Dealogic figures. But the value and number of withdrawn deals also rose over that period, from 31 deals worth US$3.37 billion to 45 deals worth US$35.89 billion, the highest ever in China.

Gertz said apprehension over Chinese foreign direct investment [FDI] had increased over the last six to 12 months, with the push-back often on the grounds of national security. Much of it was due to concerns over China’s economic power, and how that translated to political power, but China’s lack of openness to investment in its own country was another source of irritation, he said.

“There is quite clearly something specific about Chinese FDI that is viewed as much more of a threat than other countries. Everyone kind of acknowledges that in the background, but is not willing to have a clear policy that says yes, this is aimed specifically at China.”

He recommended governments avoid the “last minute, sort of arbitrary intervention” seen before the new Hinkley Point C reactor in Somerset, England, was finally given the go-ahead. On becoming UK prime minister in the summer, Theresa May immediately ordered a review of the project, which had looked a near-certainty for approval under David Cameron’s premiership.

Many Chinese companies looking to make deals in Australia and Germany have concerns now
Jennifer Zhang, financial researcher, Mergermarket

Jennifer Zhang, financial researcher at Mergermarket, also thought there had been increasing numbers of government interventions in Chinese deals in the second half of this year.

“Many Chinese companies looking to make deals in Australia and Germany have concerns now,” she said in an email.

“However, so far Chinese companies are not backing off from such countries just because of a few deals facing interventions.”

But not everyone thinks there’s an anti-Chinese investment trend.

“From time to time we’ll have these periods of uncertainty, we’ll have these periods where there’s an exchange at a diplomatic level,” said David Fleming, head of M&A in Asia Pacific for law firm Baker & McKenzie.

“But I don’t think it will fundamentally stop Chinese investment outbound, or investment inbound because of the demand for technology and resources in particular and because of the policy direction that China has taken.”

Chinese acquisition had grown, so statistically speaking there were likely to be more deals approved, and more deals declined, he said.

“I’m not a believer that there’s a single global trend. There’s commonality obviously, there’s coincidence in timing. But we don’t see it as a conspiracy,” Fleming said.

He said there was a possibility that deals could take longer to close next year due to global uncertainty following Brexit and the unexpected election of Donald Trump.

After the Ausgrid deal was blocked in August, China’s Ministry of Commerce spokesman Sun Jiwen said the decision would “severely hurt the willingness of Chinese companies to invest in Australia”.

So far, National Australia Bank’s group chief economist Alan Oster says there’s been no sign of any reduction in Chinese investment in Australia. The country received US$78.68 billion in Chinese direct investment between 2005 and 2015 - second only to the US’s US$99.92 billion, according to a KPMG study.

“Overall, the big picture is that Australia is open for business, and we’re not trying to restrict things,” he told the Post.

Oster said it was unlikely that China would stop investing in countries that had blocked deals. Ultimately, he thinks Chinese investment benefits everyone.

“It’s the biggest economy, it can’t just go to emerging markets, the markets are not big enough,” he said.

“If China makes an investment in Australia or any other country, it wants that investment to do well. If it does well it’s good for the locals as well, even though there is a rhetoric out there that they’re taking our jobs and all that sort of stuff.”

Gertz agreed that China couldn’t really write off all of Europe and the US.

He said: “If there was only one country that was imposing these strict rules it would be much easier for China to say, ‘OK, we’ll just not go to this country, we’ll go somewhere else’.”

Ultimately, Fleming says, more transparency from governments and Chinese acquirers is key.

“It’s the uncertainty or unpredictability that causes people to pull back and think things are more adversarial or negative than they necessarily are.

“It would be mainly those things that would contribute to greater understanding and hopefully greater successful transactions.”