Despite Recent Downshift, Long-Term Chinese Overseas Corporate Acquisitions to Remain

Chinese corporates’ foreign investments are likely to grow over the long term, despite a dramatic drop in such investments during the first nine months of 2017. That’s because Chinese authorities are likely to support overseas acquisitions of companies looking for advanced technology and strategic assets and to create jobs that enhance the country’s Belt and Road Initiative, according to a recent report by Fitch Ratings.

Year-over-year, Chinese corporate outbound activity dropped by 42% in the first three quarters of the year, thanks to the government’s tightened approval process related to its desire to limit capital outflows since the end of 2016. Overseas mergers and acquisitions in property, hospitality, and sports and entertainment saw a drop of nearly 70%.

Some of these restrictions on investments are likely to continue into 2018, while increased scrutiny from overseas regulators and regulatory uncertainty in the U.S. pose added headwinds to Chinese investments overseas, analysts said.

Still, many Chinese companies are at an early stage in terms of the interest in expanding overseas investments, while the Belt and Road Initiative is expected to continue interest in overseas M&A activity, Fitch said. Indeed, investments related to this initiative have increased in 2017.

Analysts at the ratings firm also believe Chinese overseas M&A will shift from energy and commodities to consumption-driven sectors like health care, consumer goods and high-end manufacturing. “It was notable that five out of China's top 10 overseas acquisitions in 2016 were in the computer and software and manufacturing sectors, and none was in the mining sector,” Fitch said.
 “Private companies have overtaken state-owned enterprises (SOEs) in overseas M&A transaction value, while appetite is switching away from resource-rich markets such as Australia, Canada, South America and Africa, in favor of the U.S., Europe and developed Asian economies.”

– Nicholas Stern, managing editor

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