China firms on global buying spree

Chinese companies went on an overseas shopping spree in the first three months of the year, with the value of outbound deals rising 118 per cent, to $21.4 billion, from the period a year earlier, a study released on Thursday showed.

South America and Europe were the main target regions, with the resources and energy sectors accounting for 92 per cent of all foreign mergers and acquisitions by Chinese companies in the quarter, according to a survey published by A Capital, a private equity fund with offices in Shanghai, Beijing and Paris.

Flush with cashed, Chinese companies have been accelerating overseas purchases in recent years to secure strategic assets, capitalise on the euro crisis and hedge against slowing growth at home.

Privately owned companies accounted for 42 per cent of China’s overseas deals by number in the first quarter, but only 2 per cent by value, because of a focus among huge state-owned companies on pursuing large energy and resource acquisitions, the survey showed. The biggest such transaction during the period was the $4.8-billion purchase in March of a 30 per cent stake in the Brazilian company Petrogal Brasil by China Petrochemical Corporation, or Sinopec. For deals outside the resource sector, European companies were the main targets, accounting for 83 per cent of such acquisitions.

While many observers point to the activity as evidence of state-backed capitalism or Beijing’s mercantilist approach to overseas acquisitions, researchers at the Rhodium Group, a consultancy based in New York, wrote in a separate report released on Thursday that commercial considerations were the main drivers of corporate China’s foray into Europe. “Direct political guidance has played a very minor role in Chinese investment in Europe thus far,” Rhodium analysts wrote. “China’s industrial policies and encouragement (via offered low-interest capital) of going abroad are impacting investment decisions, but they are not the primary reasons firms from China are appraising opportunities in the EU.”

Annual direct investment by Chinese companies in Europe tripled from 2006 to 2009, and tripled again by 2011, to $10 billion, according to the report. Deals are getting bigger, too, with the number of transactions worth more than $1 million doubling to almost 100 in 2010 and 2011.

The A Capital report said an additional $800 billion in Chinese outward direct investment was likely to emerge in five years, putting the country on course to break its reliance on inbound foreign direct investment — and ultimately for China to become a net exporter of investment.

The private surveys on overseas mergers and acquisitions by Chinese firms provide useful additional perspective on China’s official statistics on offshore investment. Outward investment by nonfinancial institutions in China rose 72.8 per cent in the first four months of the year, to $23.2 billion, according to government figures. That included deals involving 1,445 companies in 109 overseas countries and regions.

 

© 2012 The New York Times News Service