China’s Record Outbound Mergers And Acquisitions Set To Continue Growing Despite Economic Slowdown: Report

SHANGHAI — Record-breaking growth in China’s overseas mergers and acquisitions is set to continue, analysts at PricewaterhouseCoopers (PwC) said in a report, with currency falls or economic slowdown unlikely to have a major effect.

PwC China said that China saw 115 outbound M&A deals in the first quarter of 2016, worth $82.6 billion, around double the figure for the same period a year earlier. More than half the deals were done by private companies, a major growth sector — though state-owned companies still accounted for more than two-thirds of the total value.

“Outbound M&As have become part of the long-term strategy for many Chinese companies, and [are] less likely to be affected by temporary fluctuations in the Chinese economy or yuan depreciation,” Andrew Li, leader of PwC China advisory services in China, told local media.

Chinese overseas investments have been rising for the past six years, and have become increasingly high-profile, as domestic companies, some with government backing, others boosted by stock market listings or with easy access to capital, seek new investment channels and new markets as domestic growth slows. China's gross domestic product growth fell to 6.9 percent last year, its slowest rate for a quarter century.

Chinese companies have an “inherent need to step up transformation, bolster competitiveness and diversify overseas asset allocation,” Li said.

His comments came as another report showed that Chinese investment in overseas real estate also doubled last year, to almost $30 billion.

And some analysts have argued that uncertainty about China’s currency, which lost some 4 percent of its value last year, could encourage the trend, with overseas investments seen as a possible hedge against further falls in the yuan.

Some Chinese companies are seen as using mergers and acquisitions to upgrade their technology and management skills, as well as develop overseas market, as in the deal by Chinese white goods maker Haier to buy the home appliances division of General Electric, for $5.4 billion. State-owned Beijing Enterprises Group also recently bought German waste management company Energy from Waste for around $2 billion, while Chinese car parts supplier Joyson recently bought U.S. air bag manufacturer Key Safety Systems for more than $900 million.

Other companies have used overseas investment as a chance to diversify. Chinese real estate giant Wanda, for example, has made major acquisitions in the movie industry in the U.S., and this year pledged to spend up to $10 billion to build an entertainment and industrial park in India, while Shanghai-based developer Greenland Group says it will invest not only in overseas real estate but also international e-commerce.

China's HNA group has also become a major player. The aviation and shipping group, which has already invested in real estate in London and air freight business in Switzerland, recently agreed to pay $6 billion for U.S. electronics distributor Ingram Micro.

And PwC said the trend was only likely to expand, noting that the Chinese government is taking steps to make overseas acquisitions simpler. Earlier this month, China’s economic planning agency announced new draft rules on overseas investments, which would abolish a requirement for companies to get cabinet approval for sensitive investments worth more than $2 billion, according to the official Global Times newspaper.

Europe and the U.S. will continue to be the most popular destinations, PwC said, though the report noted that the number of Asian investments also rose sharply, by 63 percent in 2015 compared to the year before.

But Li said Chinese companies still lack management experience and therefore “will face problems in managing international companies they acquire.”

In a sign of the challenges for Chinese businesses seeking to go global, China's Anbang Insurance caused some confusion recently when it first offered a massive $14 billion for Starwood Hotels and Resorts Worldwide, then pulled out saying it was too expensive — a move some analysts said raised questions about Chinese business practices.

The biggest Chinese acquisition, the proposed $43 billion purchase of Swiss agrochemical and seed producer Syngenta by state-owned China National Chemical Corp., meanwhile, still needs regulatory approval, and some U.S. lawmakers have raised questions as to whether the sale of Syngenta's U.S.-based biotech division to a Chinese company would affect America's national security.

Nevertheless, some analysts say the deal is likely to go through. And despite China's slowing growth, there seems little doubt that Chinese investment — and priorities — will continue to influence more areas of life and business around the world in the near future.

China's President Xi Jinping, for example, last year launched a campaign to promote soccer in China. Since then, a Chinese consortium has bought a stake in the owner of English soccer giant Manchester City, while latest reports say Chinese companies are considering buying or investing in two of Italy’s most famous clubs. Chinese internet giant Baidu is reported to be considering buying AC Milan from current owner Silvio Berlusconi for up to $790 million, while Chinese electronics retailer Suning has said it is considering taking a 20 percent stake in Milan's city rivals Internazionale.