Mergers and acquisitions (M&As) plunged by a third in China in the first six months from last year as the economy slowed down, but such deals are expected to pick up in the second half. A study by accounting firm PricewaterhouseCoopers (PwC) showed a 42% plunge in M&A deals by foreign investors in the period, as they pulled back amid uncertainties over the economy. Domestic deals shrank 25%, while private-equity deals worth more than USD10 million fell a steep 39%. Outbound mergers and acquisitions from China, however, maintained their momentum. Deal numbers were flat year on year but values nearly tripled compared with the first half last year and are on track to set a record this year. PwC Greater China private equity group leader David Brown said deals in the resources and energy sectors continued to dominate overseas acquisitions of Chinese companies, making up about 44% of total outbound transactions. Last month, China National Overseas Oil Corporation (CNOOC) said it was prepared to pay USD15 billion for Canada’s Nexen, as part of a strategic move to enhance energy security by diversifying away from politically unstable regions such as the Middle East. If successful, it will mark China’s largest overseas acquisition. Chinese outbound deals accounted for 69% of the total deal value in the first half, and seven out of the nine deals were worth over USD1 billion each. PwC said M&As would likely increase in the second half as more funds prepared to invest and more deals moved through the pipeline. Still, there could be fewer deals this year than last year. Private equity funds continue to be interested in investing in sectors that are in line with 12th Five Year Plan priorities such as the consumer, health care and technology sectors.

Carlyle Group purchased a 13.5% stake in Meinian Onehealth Healthcare Co, showing  confidence in the development of preventive healthcare checkup services in China and the role private medical agencies play. “The preventive healthcare checkup service industry of China is growing at 15% a year,” said Feng Junyuan, Managing Director of the Carlyle Group. “The annual revenue of the Chinese preventive healthcare checkup service industry is between CNY40 billion and CNY50 billion,” said Yu Rong, Chairman of Meinian Onehealth
Healthcare Co. Founded in 2004, the Shanghai-based company became China’s largest private provider of preventive healthcare checkup services in 2011. The company owns a network of 83 clinics in 41 cities, including Shanghai, Beijing, Tianjin, Shenzhen and Chengdu. About 20 of them will open by the end of 2012. According to Yu, the company will serve more than 3 million individuals this year. By the end of 2015, it is expected to have 300 clinics around China. Carlyle also owns a stake in China Concord Medical Service Co, a medical service network. Carlyle has invested about USD4 billion in more than 60 deals in China.

Meanwhile, Beijing-based Ciming Health Checkup Management Co, a leading private provider of checkup services, is preparing for its IPO on the Shenzhen Stock Exchange. According to its prospectus, the Chinese health checkup market registered 287 million visits in 2010, an increase of 24.8% from the previous year. In late 2007, iKang Guobin Healthcare Group — another Beijing-based preventive healthcare checkup service provider — received investments from investors including Merrill Lynch and ePlanet Ventures totaling USD25 million. By the end of 2011, the company had 25 clinics in China.

China National Off-shore Oil Corp’s net profit fell to CNY31.87 billion in the first six months from CNY39.34 billion a year earlier, as revenue fell 5% to CNY118.27 billion, while oil and gas output shed 4.6% to 160.9 million barrels of oil equivalent (BOE). CNOOC blamed the lower output to the closure of its key Penglai 19-3 field in China’s Bohai Bay after an oil spill last year. The company hasn’t provided a date for the field’s start-up, which is pending government approval, although it is operationally ready to resume production. CNOOC is confident of meeting its production target of 330-340 million barrels of oil equivalent for 2012 set earlier in the year. CNOOC has announced it will take drastic measures to get the money it needs to buy Nexen in the wake of its disappointing first-half profits, which fell nearly 20%. CNOOC Chairman Wang Yilin said that the company will reduce its dividend almost by half to help raise the USD15.1 billion it needs to buy the Canadian company. The Nexen deal should help China gain both the technology and operating experience it needs to extract potentially huge domestic reserves of bitumen, heavy oil and shale oil, said industry experts.

Soho China will shift its strategy from the “build and sell” model to “build and hold” as it expects a promising growth in rent and capital value of prime office buildings in Beijing and Shanghai. The Beijing-based developer intends to hold prime office and retail spaces totaling 1.5 million sq m — 1.12 million sq m in Shanghai and 380,000 sq m in Beijing — and expects annual rental income from existing portfolios to exceed CNY4 billion in five years. “We hope rental income will become a major source of our profit in three years while sales will become supplementary,” said Pan Shiyi, Chairman of Soho China. Beijing posted a 73% jump in office rents while Shanghai’s rose 18% over the past 18 months, according to CB Richard Ellis. For the six months ended 30 June, Soho’s turnover dived 54% to CNY1.22 billion, as no new projects were completed for booking during the period. The net profit attributable to equity shareholders plunged 65% annually to CNY613 million. The company expects that rental income will replace sales revenue to become the major profit contributor in three years, and that in five years’ time, annual rental income will exceed CNY4 billion. By the end of the first half-year, the company had CNY15 billion of capital in hand, and its net gearing ratio stood at 20%. Pan said the two factors made the company capable of making the strategic decision, and that the company would raise its gearing ratio to 30% to complete the transition. In line with the transition plan, the company cut its sales target of CNY23 billion for this year by half to CNY12 billion. Contracted sales were CNY6 billion by the end of the first half. For the six months ended June, Soho China posted a 54% drop in turnover to CNY1.22 billion compared with a year earlier.

Competition in the home appliance industry is heating up as major retailers Suning Appliance, Gome Electrical Appliances and e-commerce player 360buy wage a new round in their price war. 360buy’s Chairman and Chief Executive Liu Qiangdong said the retailer would make zero gross profit selling big-size home appliances over the next three years. 360buy cut prices of television sets, refrigerators, washing machines and air conditioners, making sure they would be cheaper than what was being offered by competitors Suning and Gome. Suning.com guaranteed its prices would be lower than those of 360buy, while Gome’s website promised to offer “the cheapest price in history” for home appliances. Dangdang and 51buy also joined in, pledging to adjust their prices. Shares of some retailers fell as investors worried the price war would further erode their bottom lines. “This round of the price war will be a turning point for the home appliance retailing industry,” said Zuo Yingjie, Market Expert who runs Beijing-based online shop All3C.com. “360buy started the war because it knows Suning and Gome’s weakness very well. The two traditional retailers have higher costs running their bricks-and-mortar shops although the operating efficiency of these shops is lower than online stores.”