China to spend $2 trillion on M&A abroad in next decade: Report

BEIJING • Chinese acquirers will spend US$1.5 trillion (S$2.08 trillion) buying companies overseas in the next decade, 70 per cent more than in the previous 10 years, even as regulators at home and abroad block deals, Linklaters said in a report yesterday.

Government policies encouraging Chinese companies to invest in manufacturing capabilities, particularly for advanced technology, and international trade will help maintain deal flow, the law firm, which specialises in advising on mergers and acquisitions (M&A) , said in the report.

Chinese buyers have spent about US$880 billion on assets in other countries in the last 10 years, according to the data.

The success of China's bidders will depend on their ability to overcome foreign countries' concerns about national security and interest, which contributed to the failure of as much as US$75 billion in announced outbound deals last year, said Linklaters in the report. China may also have to bow to international pressure to liberalise its markets, it added.

While the pace of outbound deals has declined in 2017, China's long-term aspirations mean that overseas "investment and acquisitions from China will continue to be a significant force over the long term", Linklaters said.

Regulators have generally blocked Chinese businesses' bids for companies in industries seen as critical to their economies or national security, such as infrastructure and technology.

Aixtron, the German semiconductor equipment-maker, saw its planned sale to a Chinese-backed company collapse in December after the United States government opposed the deal. Push-back from the same group, the Committee on Foreign Investment in the US, led to the termination of Chinese firm GO Scale Capital's US$2.8 billion bid for Royal Philips' lighting unit, Lumileds.

A rebound in M&A will also rely on a softening of the Chinese government's stance towards large, overseas deals, which some in the government see as a threat to the country's growth. Its regulators are assessing the dangers that these prolific acquirers, and the debt they have run up, pose to China's banking system and economy.

HNA Group, the Chinese aviation and shipping giant behind some of the biggest overseas deals, is among the acquisitive firms under increased government scrutiny.

Several major Chinese banks that have helped fund HNA's deal spree have stopped issuing new loans to the company, people familiar with the matter said last month.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 09, 2017, with the headline 'China to spend $2 trillion on M&A abroad in next decade: Report'. Print Edition | Subscribe