Date
18 August 2017
Europe has become the top destination for Chinese investors, with Britain a major M&A market. Germany accounts for the bulk of the deals. Photo: cnn.com
Europe has become the top destination for Chinese investors, with Britain a major M&A market. Germany accounts for the bulk of the deals. Photo: cnn.com

China restructuring to boost outbound M&A deals

China’s restructuring to a consumption-driven economy from an export-led model is set to trigger a new wave of outbound mergers and acquisitions (M&As) by Chinese companies.

At the same time, it will open the door to more foreign investors.

Chinese consumers will drive global economic growth, with the country building on technology, new brands and expertise in hotel and tourism, as well as non-commodity resources such as labor and capital to further integrate with the world economy.

Europe has become the top destination for Chinese investors.

Last year, China’s investment in the eurozone nearly doubled, largely driven by acquisitions in advanced technology, brands and high-end manufacturing.

The move is expected to bolster the competitiveness of Chinese companies and strengthen consumer confidence in their products.

Most Chinese investments in North America and Europe have been M&A deals.

Britain has become a major M&A market. Germany accounts for the biggest share of deals.

In 2013, Chinese companies completed 120 M&A deals in Europe, with 25 in Germany and the rest in France, Netherlands and Italy.

Meanwhile, privately owned Chinese firms have posted staggering growth in European investment.

For most Chinese companies, acquiring a global brand can speed up globalization and distinguish them from their peers while helping them attract talent.

The investment boom has helped create jobs and boost revenue for certain European sectors such as telecommunications.

It remains unclear, however, whether the new Chinese middle class can open up new markets for Europe’s struggling manufacturing and tourism sectors.

With Chinese consumers getting used to buying more expensive, high value-added products, the relatively prohibitive labor cost in Europe may no longer be an issue.

That could bring new opportunities for the region’s manufacturing sector.

At present, China has a tight grip on capital inflows and its service sector is largely closed to foreigners.

However, rapidly increasing outbound direct investment by Chinese companies could prompt European firms to seek M&A deals with small and medium-sized companies to tap into emerging markets.

In recent years, the renminbi has played an increasingly bigger role as a trading and investment currency.

The trend will give China a bigger say in global financial markets as more Chinese firms seek M&A deals.

This article appeared in the Hong Kong Economic Journal on Feb. 6.

Translation by Julie Zhu

– Contact us at [email protected]

JZ/JP/RA

Co-head of Global Corporate & Investment Banking of Hong Kong & China at HSBC Holdings plc.

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