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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 realizing
the importance of this concept. For
some time, Chinese corporations
(manufacturers in particular) have
competed with other corporations on
the global stage on low labor 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.
to achieve a socialist market economy and
improve the 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
internationalization. By taking advantage
of the B&R initiative, it is expected that the
internationalization 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.
The report found that China’s top
location of interest was the U.S., with 84
transactions completed 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
internationalization 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
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.
50 The Occupier Edge