Drive to Remake China's Economy Is Fueling Acquisition Spree
"Go-Global" strategy is leaving a Chinese imprint on businesses across the globe. Chinese companies have proposed 128.3 billion dollars in acquisitions this year, up 185 percent over the same period in 2014.
The Chinese have a proverb that there is opportunity in every crisis. Today, the wisdom of this ancient proverb is taking on a whole new meaning for many Chinese companies that are aggressively expanding by acquiring Western assets in an effort to shake off the effects of a sluggish economy and take advantage of new government incentives to "go-global."
In 2015 alone, Chinese companies have been acquiring assets in the US and Europe at a record pace. According to data compiled by Bloomberg, Chinese companies have proposed 128.3 billion dollars in acquisitions this year, up 185 percent over the same period in 2014. In a broader measure of global merger and acquisition activity by Dealogic, Asian firms have snatched a record 30 percent of a total 4.2 trillion dollars in deals this year, compared to a 10-15 percent share in the past. This new go-global strategy is affecting virtually every major business sector – from chemicals to aviation, insurance, technology and real estate.
Analysts say that many Chinese companies feel pressured to expand overseas because of shrinking profit margins at home, largely as a result of China's economic slowdown. At the same time, China is transforming into a consumer-driven economy and many Chinese companies are eager to pursue acquisitions that will allow them to access and leverage new technology, well-known brands and production processes.
China's government is also stoking the fire with incentives to expand. Earlier this year, China's State Council unveiled its "Made in China 2025" policy, a blueprint for comprehensively upgrading Chinese industry, primarily through technology. But it also places a high strategic priority on Chinese manufacturers building their global brands and moving up the global value chain in manufacturing.
Deals Close to Home
The flurry of deals that have emerged since then have been huge, wide ranging and, in some cases, very close to home. For example, China National Chemical Corporation's recent 41.6 billion dollars bid for Switzerland's Syngenta AG, a pesticide maker. A deal with Syngenta would give China a major position in the global agriculture industry, which is increasingly important as the nation imports more food. If approved, the deal would be the biggest acquisition by a Chinese company.
In November, the European Union approved the 2.7 billion dollar acquisition of Swissport International, a major airport luggage and cargo carrier to airlines in Europe and abroad by HNA Group, China's fourth-largest airline. Swissport is based in Opfikon.
Asian Insurers Are Looking Further Afield
Earlier this year, Fosun International Ltd., which is backed by Chinese billionaire Guo Guangchang, announced a deal to buy Bermuda-based insurer Ironshore Inc. for 1.84 billion dollars.
"Asian insurers are definitely looking further afield than previously; but most are still domestically focused given there is plenty of growth in most markets," said Arjan van Veen, Head of Asian Insurance Equities Research. "We still expect this to be driven by a handful of companies in small steps; but it will likely be a lot more activity than has been the case historically."
Real Estate Benefitting from Chinese Expansion
Commercial and residential real estate, particularly in the US which has so many Chinese immigrants, is also benefitting from Chinese expansion. Real-estate broker JLL estimates Chinese companies will spend more than 5 billion dollars on overseas hotel investments this year, up from 920 million dollars last year and 130 million dollars in 2012.
Real-estate brokers and analysts said Chinese companies see luxury hotels, especially in major global capitals, as long-term investments that can provide steady income while interest rates are low. Moreover, some say the properties confer prestige on their owners. China Vanke Co. Ltd., mainland China's largest residential real-estate developer, has already developed eight property projects in the US, including a 61-story apartment building in Manhattan. Shanghai-based Greenland Group is investing 5 billion dollars on a joint venture residential project near the Barclays Center, a new sports arena, in Brooklyn, a New York City borough.
Many Chinese insurance firms have also been eyeing hotel acquisitions around the world in recent years, including highly sought after luxury hotels in New York. For example, Anbang acquired New York's famed Waldorf Astoria Hotel for 1.95 billion dollars last October, and in February China Sunshine Insurance Group paid 230 million dollars for midtown Manhattan's Baccarat Hotel & Residences – the equivalent of 2 million dollars per room.
Many analysts expect the spending spree to continue. The Chinese government's recent liberalization of rules that had limited corporate investments abroad is helping to fuel the buying. Chinese firms can now invest up to 1 billion dollars without seeking government approval, up from 100 million dollars before last year's changes.