Chinese firms reportedly eyeing global acquisitions
Chinese firms and investors are said to be looking abroad, hoping to capitalise on the impact the coronavirus has had on the global markets and economy to make strategic investments and acquisitions.
According to an article by ZAWYA, during Q1, and the beginning of Q2, of 2020, up to 57 cross-border merger and acquisition deals, with a valuation of up to nearly USD10 billion, were undertaken, with investments outbound from China scaling to USD4.5 billion in value, according to data provided by data-analysis firm GlobalData.
Aurojyoti Bose, Lead Analyst, GlobalData, said: “Government policies in China have been favourable and encourage domestic companies to invest in strategic technologies/sectors/assets in foreign locations. The slowdown in the domestic economy has also fuelled the appetite for cross-border M&A.”
The Financial Times has reported that a large percentage of Chinese foreign-bound investment has gone into Vietnam, quoting the fact that ‘almost 50 skyscrapers have shot up’ in Ho Chi Minh City since the year 2008.
China has become an increasingly prominent investor into the surrounding Asia Pacific region in recent years, with only Japan beating the economic giant out for the top spot for inter-regional foreign investment.
Concurrently, fewer foreign entities are investing into China itself, instead investing elsewhere in the region, like into the aforementioned frontier market Vietnam.
Lawrence Yeo, Chief Executive, AsiaBiz Strategy, attributes this regional readjustment of investment recipients to the increased productivity and sophistication of labour in China’s surrounding emerging and frontier markets.
“In comparison to ASEAN, China is perceived by some investors to be losing its competitive edge due to a stronger currency, which makes exports more expensive,” said Yeo. Increased wages in China, compared to those of her neighbours, has been the key deciding factor in the reallocation of investment.
Despite the appetite of China’s investors for outward looking deals, according to an EY report published in late-April 2020, investor and corporate activity overall was still hit, with the country’s overall outward direct investment own 2.8% year-on-year (YOY), as stated in an article by The Asset.
Only 108 deals were announced in the opening of 2020, a figure which is down 21% YOY. More dramatic still is the reported figure for the value of China overseas M&As, which came in to be USD3.5 billion, or 78% lower YOY, making it the lowest valuation witness in a single quarter in the past decade.
Most of the Chinese M&A activity during the beginning of 2020, when broken down by region, was directed into a virus-stricken Europe, accounting for over 40% of total outbound merger activity. When regarding individual countries for M&A activity, however, Malaysia tied for notoriety with the Netherlands for popularity amongst Chinese entities.
Loletta Chow, Global Leader, China Overseas Investment Network, EY, said: “Affected by the Covid-19 pandemic, cross-border investment activities will continue to slowdown in the short term. Meanwhile, the regulation and scrutiny of foreign investment in developed countries has become more stringent, and investors will remain prudent. Despite cross-border investment opportunities and challenges for Chinese enterprises will increase concurrently, the internationalisation of Chinese enterprises will still be the general trend in the future.”
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