Source: Global Times Published: 2016-4-26
Driven by the "One Belt, One Road" initiative and "Made in China 2025" strategy, Chinese companies are expanding their outbound merger and acquisition (M&A) activity to optimize their global resource allocation, experts said on Tuesday.
Their comments followed a report by PwC, which showed that in the first quarter, 115 outbound M&A deals were announced with an overall value of $82.6 billion, doubled the year-earlier figure.
That followed a rise in outbound M&A deals in 2015 of 41 percent to 346 deals, with a total value of $55.1 billion, PwC said on Monday.
Domestic companies buy overseas companies for various purposes.
"With the aid of sufficient foreign exchange reserves, `the Belt and Road initiative` and the expansion of free trade zones, Chinese companies are seeking to expand their overseas business. This drive comes as the government steps up efforts to upgrade China from a manufacturer of quantity to one of quality," Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Tuesday.
"The Belt and Road initiative" refers to the Silk Road Economic Belt and the 21st Century Maritime Silk Road, which were proposed in 2013 by President Xi Jinping.
Sectors such as industrials, high technology and consumer goods are drawing more attention, as these sectors face challenges and industrial upgrading, experts noted.
Chinese companies made at least 168 outbound deals in these three industries, accounting for about 50 percent of the total deal numbers in 2015, the PwC report said.
"High-technology companies may seek to get high-quality resources while industrial corporations look to overseas enterprises to [expand] their international industry chain, enhance cooperation in terms of absorbing capacity and facilitate strategic development," Bai said.
In January this year, media reports said home appliance maker Qingdao Haier Co would buy GE`s appliance unit for $5.4 billion. Bai said that deal was a bid by Haier to "strategically allocate its business around the world."
"Consumer enterprises want to expand their distribution channels, gain a greater global voice and build theme parks and hotels to allocate their global resources," He Weiwen, an expert at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times Tuesday.
"The fast growth of outbound M&A in the first quarter of 2016 may slow, as that growth was related to the yuan`s exchange rate and the results of the announced M&A deals are uncertain," said He.
Also, successfully concluding an overseas M&A deal is just the initial step, experts said. Domestic companies face many post-acquisition management challenges, such as differences in national conditions, laws and regulations, which need to be taken into consideration during the M&A process.
He Weiwen, one of the interviewees in this article, was a senior fellow of the Chongyang Institute for Financial Studies at the Renmin University of China.