China tipped to spend $1.5tn on overseas buys

Chinese acquirers will spend $1.5 trillion (€1.28tn) buying companies and investing overseas in the next decade, 70% more than the previous 10 years, even as regulators at home and abroad block deals, multinatonal law firm Linklaters has said.

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 — said in a report. Chinese buyers have spent about $880bn 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 $75bn in announced outbound deals last year, Linklaters said in the report. China may also have to bow to international pressure to liberalise its markets, it said.

“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 US 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 $2.8bn bid for Dutch technology group Philips’ lighting unit, Lumileds.

A rebound in M&A activity will also rely on a softening of the Chinese state’s stance toward 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’ve run up, pose to China’s banking system and economy.

HNA, the Chinese aviation and shipping giant that’s behind some of the biggest overseas deals, is among acquisitive companies under increased government scrutiny.

Several major Chinese banks that have helped fund HNA’s deal spree have stopped issuing new loans to the company. HNA has said its financial position remains strong and it has untapped credit available from a wide range of Chinese lenders.


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