Out­bound M&A to sta­bi­lize in H2

China Daily (Hong Kong) - - BUSINESS - By LIN WEN­JIE in Hong Kong cher­rylin@chi­nadai­lyhk.com

The sec­ond half of the year will see China’s out­bound merg­ers and ac­qui­si­tions sta­bi­liz­ing, in the wake of the slump in the first six months, ac­cord­ing to a new re­port is­sued jointly by the China Merg­ers & Ac­qui­si­tions As­so­ci­a­tion and in­ter­na­tional ac­count­ing firm EY, for­merly Ernst & Young.

The re­port es­ti­mates that a to­tal of $100 bil­lion of non-fi­nan­cial ODI, or out­bound direct in­vest­ments, will take place in 2017 — the vast ma­jor­ity of them M&A — rep­re­sent­ing a 45 per­cent de­crease on the pre­vi­ous year.

The fore­cast sec­ond-half sta­bi­liza­tion in M&A ac­tiv­i­ties is partly at­trib­uted to the in­creas­ing in­vest­ments in Belt and Road economies.

“In­vest­ments in Belt and Road economies have seen in­creases in the first half, re­flect­ing the fact that the ini­tia­tive is be­gin­ning to play a lead­ing role in the glob­al­iza­tion of Chi­nese com­pa­nies,” said Chen Shuang, ro­tat­ing chair­man of the CMAA and the chief ex­ec­u­tive of China Ever­bright Ltd.

Data from the Min­istry of Com­merce showed that China’s non-fi­nan­cial ODI flows in coun­tries and re­gions par­tic­i­pat­ing in the Belt and Road Ini­tia­tive reached $6.6 bil­lion be­tween Jan­uary and June this year, rep­re­sent­ing 13.7 per­cent of the to­tal non-fi­nan­cial ODI flows.

The lat­est fig­ure was a 6 per­cent in­crease on the same pe­riod last year. The re­main­ing 86.3 per­cent flowed to non-B&R coun­tries, in­clud­ing the US and the UK.

Min­istry data also showed that the amount of newly signed en­gi­neer­ing, pro­cure­ment and con­struc­tion con­tracts in coun­tries in­volved with the B&R in­creased 39 per­cent to $71.4 bil­lion in the Jan­uary to June pe­riod.

“In the mean­time, buy­out funds with deep in­sight and re­sources are play­ing an in­creas­ingly im­por­tant role in over­seas M&A, as they can help Chi­nese com­pa­nies man­age risks more ef­fec­tively and suc­ceed over­seas,” Chen added.

EY, at the re­port re­lease on Thurs­day, em­pha­sized that prospects for China’s out­bound in­vest­ments re­main pos­i­tive over the long term.

It said the coun­try’s ODI flows would over­take those of the United States in the next decade, with M&A con­tin­u­ing to be the ma­jor route for Chi­nese com­pa­nies to in­te­grate into the world econ­omy un­der the na­tion’s “go­ing out” pol­icy.

The first half fall in China’s non-fi­nan­cial ODI flows re­flected tighter pol­icy con­trols and an un­pre­dictable global po­lit­i­cal and eco­nomic en­vi­ron­ment. It also showed Chi­nese com­pa­nies be­came more ra­tio­nal about their over­seas in­vest­ments and man­aged to op­ti­mize their in­vest­ment struc­tures, the joint re­port found.

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