News analysis

Chinese firms on worldwide shopping spree

US$113b in overseas deals announced so far this year close to last year's record of US$121b

BEIJING • Chinese companies have launched an unprecedented buying spree, one far more ambitious than previous efforts focused primarily on locking up supplies of global commodities and raw materials.

Cash-rich Chinese buyers, often backed by generous lending from state banks, are trying to diversify into everything from lodging, cranes and pesticides to semiconductors, flat-screen TVs and Hollywood studios in a quest to expand into new global markets and key technologies.

A similar drive by another Asian powerhouse had inspired admiration and paranoia in the rich world, Financial Times columnist Sebastian Mallaby observed.

In the late 1980s, Japan snapped up trophy assets from New York's Rockefeller Centre to the Hotel Bel-Air in Los Angeles, for which Japanese acquirers paid the equivalent of US$2.3 million (S$3.1 million) in today's dollars - per room.

"Now, a quarter of a century later, China may be following the same script, to judge from today's merger wars at least," Mr Mallaby writes.

Anbang's is the most recent example of a company which has embarked on a wild shopping spree. It has spent nearly US$2 billion on New York's Waldorf Astoria, promising US$6.5 billion for hotels owned by private equity group Blackstone.

Until recently, its state-owned companies bought up mines and oil reserves at the peak of the market to protect itself - a commodity importer - from rising global prices.

Those companies have now lost their shirts as commodity prices fell and China itself grapples with slowing growth.

Anbang's is the most recent example of a company which has embarked on a wild shopping spree. It has spent nearly US$2 billion on New York's Waldorf Astoria, promising US$6.5 billion for hotels owned by private equity group Blackstone. The insurance group, which has twice sweetened its offer to buy Starwood Hotels & Resorts Worldwide, is now engaged in a high-stakes bidding war with Marriott International to acquire the owner of the upscale Sheraton, Westin and St Regis brands.

Since the start of the year, Chinese firms have announced US$113 billion in overseas deals, led by China National Chemical's US$46 billion takeover of Syngenta, a worldwide player in pesticides and genetically-modified seeds.

That tops the total of all deals in 2014 and is close to last year's record US$121 billion tally.

The shopping spree reflects an effort by President Xi Jinping's government to encourage Chinese companies to gain know-how and market share through foreign transactions as the country's US$10.4 trillion economy continues to decelerate, Bloomberg said.

It's a potential boon for investment bankers - and a source of worry for corporate chieftains in the United States and Europe who may soon face new Chinese competitors.

"What we're seeing is the coming-of-age of corporate China. It's being driven by a deliberate strategy to invest in the needs of the growing Chinese middle class and to acquire additional expertise," Mr Hernan Cristerna, the global co-head of mergers and acquisitions at JPMorgan Chase, told Bloomberg.

Beijing has made at least a dozen official pronouncements encouraging foreign deals since the beginning of last year.

Even as the economy slows, Chinese companies boast plenty of financial firepower. Cash held on Chinese corporate balance sheets rose 14 per cent to US$3.99 trillion in the last two years, according to Bloomberg-compiled data. 

Meanwhile, China's yuan was trading at five-year lows in January, following a surprise devaluation in August last year. The currency is forecast to depreciate another 4.2 per cent by the fourth quarter, according to the median estimate of analysts surveyed by Bloomberg.

With acquisitive firms focused on the question of the yuan's stability, "the time to go global is right now", said associate professor of finance Zhao Longkai at Peking University's Guanghua School of Management.

But, China's executives - accustomed to economic growth of 9 per cent - are inexperienced in countries with 2 or 3 per cent growth, columnist Mallaby writes.

China's businesses, built on political connections, will have little relevance when buying US hotels, he says, but if they are venturing abroad for political reasons, the commercial ones are unimportant.

He goes on to remind that Japanese acquirers offloaded US assets within a few years for less than 60 cents on the dollar, losing US$400 billion in property deals in all.

"Perhaps, knowing this history, the Chinese will prove more prudent," he wrote. "Then again, perhaps not."

A version of this article appeared in the print edition of The Straits Times on April 01, 2016, with the headline 'News analysis Chinese firms on worldwide shopping spree'. Print Edition | Subscribe