Uncertainties may slow outbound M&A activities

Chinese companies will likely continue to be a major driver of cross-border mergers and acquisitions this year, but their outbound investment activities may grow at a slower rate as a result of the rising number of political and economic uncertainties internationally, according to analysts.

In the first three quarters of 2016, China became the biggest acquiring nation in global crossborder M&A for the first time. Chinese companies completed 671 outbound M&A deals worth a total of $164.3 billion, nearly triple the amount during the same period in 2015, according to a recent report by the multinational accountancy firm PricewaterhouseCoopers.

The largest deal last year was the $43 billion acquisition of Syngenta, the Swiss pesticides and seeds group, by China National Chemical Corp, a State-owned chemicals giant.

Based on 2016 corporate results, analysts said China’s outbound investment will continue to grow, but companies may face greater uncertainties as issues such as the Brexit negotiations, the presidency of Donald Trump and elections in Europe dominate the news cycle.

“China’s outbound M&A activities probably won’t continue their high growth rate in 2017 because of the uncertainties,” said Jennifer Zhang, a financial researcher at deal data provider Mergermarket.

“The control on capital outflows, against the backdrop of a weaker yuan, is also making companies think twice about their outbound M&A strategies,” she added.

Given the economic and political uncertainties in the world’s developed economies, some analysts said Chinese companies should diversify their overseas investments and pay more attention to projects in emerging markets.

Zhang Xiangchen, China’s deputy international trade representative, said the country should broaden its overseas trade and investment channels, with a focus on countries involved in the Belt and Road Initiative.

Between January and November 2016, China’s outbound direct investment to countries and regions along the proposed route of the Belt and Road reached $13.35 billion, accounting for 8.3 percent of the country’s total ODI value during the period, according to data from the Ministry of Commerce.

Huo Jianguo, vice-chairman of the China Society for World Trade Organization Studies, said Chinese companies should carefully control the pace of their overseas investments in the more complex and volatile global economic environment.

“To avoid investment losses, companies should have a sound and complete investment plan with deep knowledge of the political, legal and business environment of the destination country,” he said.