“The Chinese aren’t coming, they’re already here.”
I’ve been told this repeatedly as I’ve traveled across Eurasia looking into Chinese investments along the New Silk Road. But it’s not just trans-continental highways and rail lines, industrial and special economic zones, and new cities that China is interested in pumping money into abroad, but foreign companies as well.
China’s outbound merger and acquisition (M&A) investment in the West has been growing at a record pace, as more and more major American and European companies are strategically being bought up by Chinese enterprises.
According to a recent report by the Mergermarket Group, China had already surpassed its yearly record for outbound M&A investment by the end of August. With 173 deals worth $128.7 billion in the books, China is so far the top acquirer of foreign companies in 2016 — a position which, if held until the end of year, could unseat the USA for the first time since 2006.
“China has seen continuous annual growth in both outbound deal size and deal volume in the recent ten years,” said Yiqing Wang, Mergermarket’s China editor. “However, 2015 and 2016 have witnessed [an] even more aggressive growth spree.”
The types of foreign firms that Chinese companies are most interested in acquiring have moved beyond the usual resource and energy sectors and into the technology, industrial, chemical, and consumer spaces, which closely mirrors the broader economic transition that is currently underway in China — which is focused on moving away from export-driven manufacturing towards high-end, high-tech R&D and domestic consumption.
In addition to being numerous, many of China’s takeovers of Western companies this year have also been huge. ChemChina acquired the Swiss pesticide and seed producer Syngenta AG for $43 billion — the largest overseas acquisition by a Chinese company to date. Tencent took over Supercell, the Finnish mobile game developer, for $8.6 billion.
Zhongwang International bought out U.S. aluminum producer Aleris for $2.3 billion.HNA Group purchased Ingram Micro Inc for $6.3 billion. Haier Group paid $5.4 billion for General Electric’s home appliance division. While even the Chicago Stock Exchange hasn’t remained off the radar of Chinese investors.
Europe has been the prime focus of Chinese M&A investment this year, with $76.5 billion going towards the acquisition of European firms. Germany is the European country drawing the most interest from Chinese pursuers, as 24 German companies — roughly one per week — have been acquired by Chinese enterprises as of June of this year. For scale, in all of last year there were only 25 such transactions.
But if we think that Chinese companies are bailing on China by buying up foreign companies – we’d be mistaken. One of the major drivers behind this phenomenon is actually the exact opposite.
“We found that [the] majority of the deep pocket Chinese acquirers aim to obtain high-end, world-class technology [to take] back home to add on [to] their current product development skills,” said Mergermarket’s Wang.
This movement is in line with China’s “Made in China 2025” initiative, which seeks to upgrade and enhance the country’s domestic manufacturing capabilities, bolster innovation, and establish ownership of key technologies. In this light, even though the cost of China’s Western shopping spree is in the hundreds of billions of dollars, the long-term economic benefit and future scalability of what is actually being acquired is thought to be a bargain.
China’s hunger for key foreign companies also complies with the “Going Out policy,” which is an initiative by the country’s central government to encourage domestic companies to go abroad to make investments, utilize foreign reserves, establish consumer bases, as well as enhance China’s international political and economic influence — much of which can be accomplished through M&A.
With the year-on-year growth rate of China’s domestic economy leveling off, the country’s wage advantage rapidly vanishing, the large amount of political and financial support for outbound investment, a booming consumer market at home, and the new infrastructure network that is rapidly spanning across Eurasia, now is a riper time than ever for Chinese companies to venture into foreign terrain. Which is to say, expect this movement to continue growing.
“After all,” Wang concluded, “it’s just the beginning of their globalization spree.”