Cross- border M& A set to grow
Govt says no currency curbs for ‘ legitimate’ purposes
Chinese companies are at the beginning of a long- term growth trend for cross- border merger and acquisition ( M& A) deals despite a slowdown stemming from tightened regulations on foreign exchange, according to a report from management consulting firm McKinsey & Company.
Chinese companies have been on a global buying spree over the past five years with outbound M& A growing by 33 percent per year, from $ 49 billion in 2010 to $ 227 billion in 2016, the report said on Thursday.
In 2016, Chinese companies spent $ 227 billion in cross- border M& A deals, up 125 percent year- on- year. Chinese companies were involved in 10 of the largest deals worldwide, including ChemChina’s $ 47 billion acquisition of Syngenta, a Switzerland- based agriculture company, according to the report.
The Syngenta deal has gained regulatory approval from the EU and the US and is reportedly set to be completed in the second quarter of the year.
However, there has been a sudden slowdown in Chinese companies’ outbound M& A deals in recent quarters, the report said, attributing the trend to “tightened foreign exchange controls” by Chinese regulators.
Chinese officials have rebutted suggestions that regulatory restrictions have been placed on normal transactions for Chinese and foreign companies.
“The State Administration of Foreign Exchange has not restricted any legitimate outbound payments or demand for the purchase of foreign currency by companies,” Pan Gongsheng, head of the agency, said during a forum on Wednesday.
China’s cross- border trade and investment will be made more convenient to boost the development of the real economy and enterprises, Pan stressed.
“While the concern over capital flight is valid … the majority of deals Chinese players are making are in pursuit of valid commercial goals, and therefore it’s important to take the long view on exactly how success- ful they’ve been,” said David Cogman, a partner of McKinsey China, in the report that was sent to the Global Times.
“This slowdown is likely to only be a short- term correction, while the long- term growth trend in crossborder M& A ... will continue to gain momentum,” the report noted.
It added that tightened regulations on foreign exchange could turn out to be a positive development as they will likely reduce the number of “financial diversification” deals that are being done, deals that have not proved successful in recent years.
A separate report from Morning Whistle Group, a China- based Internet platform specializing in cross- border M& A and investment, released on Wednesday forecast that the shopping spree will gain momentum in 2017, focusing on areas such as advanced manufacturing and emerging industries in medical technology, artificial intelligence, big data and new media.