Why when the Chinese come shopping for assets, there is no cause for alarm
Gordon French says concerns over Chinese enterprises going on an overseas mergers and acquisitions spree are misplaced, as it is just the sign of a ‘new normal’ amid a shifting economy
This has been the year that Chinese companies have truly gone global. Collectively, they have announced more than US$170 billion of acquisitions abroad during the first nine months of 2016 – more than in any previous year.
Not all have been welcomed with open arms by politicians, regulators or the companies being targeted for purchase. Concerns are understandable when a country quickly becomes such a force in global mergers and acquisitions: compare the anxiety about Japanese acquisitions in the 1980s. But there is a strong commercial rationale behind China’s overseas acquisitions, and these actually present substantial opportunities to the firms and economies in question.
A Chinese investor also brings valuable experience of operating in the vast, complex Chinese market
While Chinese enterprises certainly need access to the brands, technology and – sometimes – growth prospects in international markets, they also have a lot to offer. Chinese capital can provide welcome cash injections, but a Chinese investor also brings valuable experience of operating in the vast, complex Chinese market that is critical to many firms’ growth plans.
As Chinese outbound merger and acquisition volumes surge and begin to involve household names, the headlines and scrutiny are not surprising. Eye-catching deals this year include ChemChina’s giant US$44 billion bid for Swiss agrochemicals company Syngenta, Haier’s US$5.6 billion purchase of General Electric’s household appliances arm; and white-goods maker Midea’s bid to take over German robotics company Kuka for €4.5 billion (HK$38.8 billion).
China overtakes US as world’s largest assets acquirer
The initial impetus for China’s overseas mergers and acquisitions drive, 20 years ago, came from Beijing, which sought to get firms venturing beyond China to become globally competitive. The wave of activity over the past couple of years, though, is the product of more mundane drivers: the sheer size of the economy; the shift towards consumption, services and private-sector activity; and China’s slower growth trajectory.