Tightened checks dampen M&A deals
October 24, 2017 Category China News Round-up, Weekly
China’s outbound merger and acquisition (M&A) activities cooled off in the third quarter as tightened investment scrutiny from Beijing and Washington continue to take effect. Chinese companies recorded outbound M&A deals worth US$95.9 billion in the first three quarters of 2017, slumping 35% from the same period last year, according to a Mergermarket report.
China stepped up controls over capital outflow last November amid a buying spree of overseas assets among Chinese firms, who overtook their American counterparts and became the world’s top buyer of global assets last year. Beijing has cracked down on overseas investments by aggressive deal making conglomerates, including Anbang Insurance Group, Dalian Wanda Group, Fosun International, and HNA Group.
The controls have led to a rebound in the country’s foreign exchange reserves to an 11-month high of USD3.1 trillion at the end of September, after falling below the psychologically significant USD3 trillion level in February. Apart from Beijing’s crackdown, stricter inspection of Chinese investments by the U.S. government has also dampened transactions, the report said.
Zhong Shan, China’s Minister of Commerce, also confirmed that the Chinese government still encourages its enterprises to go global, after recent regulatory changes sparked concerns over the potential end of China’s acquisition binge abroad. “There have been some structural changes in Chinese firms’ foreign investments, including a shift to buying more hi-tech and capital-intensive companies in developed economies,” he said. Chinese companies’ total overseas assets have grown to USD6 trillion to date, Zhong said. China’s CNY2.1 trillion national pension fund is also seeking more overseas investment opportunities to diversify its risks, Chairman Lou Jiwei told the South China Morning Post. The overseas portfolio of the fund, mainly stocks and bonds, only accounted for 10% of the total, while the government cap was set at 20%.
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