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Sweeping new markets for
business growth
Going abroad in the pursuit of new
markets is of interest to many Chinese
corporations, including Chinese
manufacturers, which have a number
of particular motivations. Many
manufacturing corporations in China
are seeing their sectors deregulating,
are mired by overcapacity production,
and are encountering strong pressure
on profit in their home market.
Consequently, this specific group of
Chinese corporations are unsurprisingly
seeking new markets abroad where they
can enjoy less fierce competition and
earn higher profits.
Obtaining the latest
technologies and advanced
management skills
Innovation as a means to stay ahead in
the business world is paramount for any
company, and Chinese corporations are
no different in realising the importance
of this concept. For some time,
Chinese corporations (manufacturers
in particular) have competed with
other corporations on the global
stage on low labour costs and forceful
pricing, instead of on inventive,
branded products with profit margins
that are higher. A growing number of
Chinese corporations are now certainly
developing their own technologies and
management know how to enhance
their global competitiveness. Other
Chinese corporations, however, have
gone abroad and have sought global
partnerships and/or foreign acquisitions
to fill any existing technological and/
or management skills gap that they
perceive exists between them and other
global corporations operating in the
same business environment.
M&A activity – A means to an
end
The number of mergers and
acquisitions (M&A) of overseas
business entities by Chinese corporates
has not seen any let up of late. Buoyed
by the B&R initiative, 2016 saw a rapid
increase in the number of overseas
M&A deals executed by corporations
from China. The report found that
China’s top location of interest was the
U.S., with 84 transactions completed
modern enterprise system.” In essence,
what this entails, is that China’s SOEs,
particularly the big SOEs should:
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Participate and contest in global
markets.
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Assign resources around the world.
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Improve operational efficiency.
The B&R initiative plays a big part in
this overall scheme and will serve as a
major stepping stone as China-based
SOEs ‘feel the stones as they cross the
global economic river.’
The B&R initiative will undoubtedly
create more promising external
circumstances for China’s SOEs to
invest abroad and therefore herald
a new age of China’s SOE sector
internationalisation. By taking
advantage of the B&R initiative, it is
expected that the internationalisation
of China’s SOEs will alter emphasis
from simply expansion to enhancing
operations management and improving
global competitiveness.
POEs in particular
With the rising economic might of
Chinese POEs and the government’s
encouragement for “going out,” a
diminishing share of China’s cumulative
outward foreign direct investment
(FDI) is stemming from China’s SOEs.
To illustrate this, by the end of 2015,
China’s outward investment flow
from its SOEs stood at a 34.7% share
of total outflow However, outward
investment flow from the country’s
non-SOEs (essentially POEs) accounted
for a massive 65.3% of China’s total
accumulated outflow.
With their business flexibility, fast-paced
growth, investment diversification,
and being somewhat less affected
by clampdowns on investment in the
host countries, China’s POEs have the
potential to ride the B&R initiative and
gain even better investment results
and benefits. Having said this, however,
China’s POEs do and will continue to
face obstacles in being able to “go out.”
One of these is financing as POEs often
have to work that much harder to gain
the financial backing for their overseas
ventures from banks.
in 2016. What’s more, the amount of
actual investment involved during the
same time period, jumped by a larger
148% to U.S. $215.8 billion. According
to the same report, these deals were
concentrated in a number of specific
sectors, including, manufacturing,
financial services, and health. Highlight
deals included:
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China National Chemical
Corporation’s (ChemChina) U.S. $43
billion acquisition of Switzerland’s
Syngenta AG.
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State Grid Corporation of China’s
U.S. $12.4 billion acquisition of
Brazil’s CPFL Energia SA.
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Bohai Financial Investment Holding’s
U.S. $10 billion acquisition of CIT
Group’s aircraft leasing assets.
Additionally, Chinese private-owned
companies (POEs), as well as private
equity and asset management firms,
have been participating much more
in overseas M&A deals. For instance,
POEs and asset management firms
from China denoted 66% and 21%,
respectively, of the total investors who
invested into overseas markets in 2016.
By contrast, the total number of M&A
deals made by China’s state-owned
enterprises (SOEs) in 2016 stood at
13%.
SOEs in particular
China’s SOEs commenced their
internationalisation strategies decades
ago and much has been achieved in
the years since. In September 2015,
the Central Committee of the CPC
and State Council issued a de-facto
plan for SOEs to further reform (titled
“Guidelines to Deepen Reforms of
SOEs”). The blueprint stated that,
“SOE reforms aim to achieve a socialist
market economy and improve the
WHAT OCCUPIERS WANT
According to the Hurun
and DealGlobe report,
the number of these deals
in 2016 increased 21%
from the previous year to
reach 438 deals.
50The Occupier Edge