Sensible deals change Chinese M&A game
BEIJING — After a series of eyebrow-raising megadeals in recent years, a number of high-profile but less controversial Chinese deals are now grabbing the limelight.
Such deals include Sanyuan and Fosun’s takeover of St-Hubert; Fosun and Nanjing Nangang’s stakes in Koller; and Hytera’s acquisition of Norsat.
These new deals show the country’s foreign investment is stepping out of the fast lane into one focused on sensible investment and quality growth.
A report by accounting firm PwC showed that foreign mergers and acquisitions or M&A by Chinese investors in 2016 more than tripled from the previous year.
Much of this involved an increase in irrational phenomena and even suspect transfers of assets, but things are now changing.
Since late 2016, government agencies have been reinforcing inspections on authenticity and regulation compliance of outbound direct investments or ODI in a bid to improve returns and control risk.
In the latest efforts, authorities decided to limit ODI by domestic companies in several fields, including real estate and sports clubs, while encouraging them to invest in infrastructure and new technology.
The new measures have proven effective.
In the first seven months of 2017, China’s non-financial ODI dropped 44 percent year-on-year to $57 billion, official data showed.
ODI in real estate, culture, sports and entertainment sectors saw substantial declines during the period, the Ministry of Commerce said.
Meanwhile, involvement in billion-dollar projects has decreased significantly, with the majority of the deals announced this year worth less than $1 billion.
Fosun’s chair Guo Guangchang said the most serious headache for his company in
Huang Yixing, chairman of Nanjing Nangang
foreign investment used to be big-spending Chinese rivals whose bids were hard to understand. He believes such squandering will decrease as authorities tighten supervision.
Another positive trend is that investors are increasingly focusing on high technology, structural upgrading and capacity cooperation.
Nanjing Nangang’s stake in Koller, for example, eyes the German company’s lightweight technology, which could effectively decrease energy consumption and promote sustainable development.
“Koller’s expertise in providing lightweight solutions is in line with Nanjing Nangang’s transformation direction,” said Huang Yixing, chairman of Nanjing Nangang.
“Strategic cross-border mergers, especially those associated with industrial upgrading and the Belt and Road Initiative, will take the lion’ s share of the country’s overseas mergers this year,” said Li Ming at PwC.
Last but not least, while many investment bets are overseas, they actually eye domestic markets.
Guo expects that more Chinese companies will integrate global resources through overseas investment and mergers to develop themselves, pointing to Sanyuan and Fosun’s plan to buy French margarine maker St-Hubert as a case in point.
The proposed acquisition will introduce healthy foods into China and is aligned with the government’s policy to support and drive technological innovation, Guo said.
Authorities will roll out a negative list for programs that forbid and limit foreign investments and facilitate the implementation of those where the government wants to encourage foreign companies to invest, said Huo Jianguo, vice-chairman of the China Society for WTO Studies.
The State Council last month announced a series of measures to ensure steady growth of foreign investment.
China should make its foreign investment environment “more law-based, international and convenient” to increase growth and raise the quality of foreign investment, according to a document by the State Council.
Koller’s expertise in providing lightweight solutions is in line with Nanjing Nangang’s transformation direction.”