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Chinese companies boost international M&A with overseas investments

FOCUS: Chinese companies have spent almost $87 billion since the start of 2016 on buying companies overseas, as businesses take advantage of the strength of the RMB and the opportunity to transfer money out of China.05 Apr 2016

According to the latest data released by Thomson Reuters, Chinese cross-border merger and acquisition activity hit $95bn in the first quarter, a 136% rise on the same period last year, and 91% of this was outbound investment.

This scale of investment is partly driven by a relatively strong RMB. From a China perspective, foreign companies are relatively cheap. In addition, China has reduced the red tape required for foreign direct investment, making it easier to invest overseas.

It remains to be seen whether this momentum can be maintained throughout the year; if the RMB continues to devalue, it will become more expensive for Chinese investors to acquire foreign targets. It is also possible that the Chinese government will become more cautious when approving out-bound investments in view of recent capital outflows. Overall, though, there will be a long term and healthy flow of money from China into the rest of the world.

Chinese investment accounted for 44% of all M&A activity worldwide, up 8% from the first quarter of 2015 and the one strong spot in a slow market: worldwide M&A activity has fallen 18% since the same quarter last year, giving the slowest first quarter in two years. There were 9,250 deals worldwide, down 10% on the year before. 

The materials sector has been the strongest for outbound Chinese investment, followed by industrials and technology businesses. In fact, the largest deal made in the quarter was the takeover of Swiss agribusiness company Syngenta by CNAC Saturn, a subsidiary of the Chinese state-owned China National Chemical Corp, in an all-cash $43.8bn deal that was the largest-ever takeover in the chemical sector.

Chinese aviation and shipping group HNA Group is also buying electronics distributor Ingram Micro for around $6bn, while Dalian Wanda, a Chinese real estate and leisure business, has been buying up companies including US media company Legendary Entertainment, and film business Carmike Cinemas. Wang Jianlin, chair of the company and reportedly the richest man in China, has said that he considers the UK the best place in the world to invest and that plans to invest $1bn in the UK entertainment industry.

China unsurprisingly drove most of the M&A activity in emerging markets, too, according to the Thomson Reuters data. The total value of data in the emerging markets reached $281bn in the first quarter of this year, up 37.2% on last year, although the number of transactions fell slightly to 3,319. Of these, 1,355 were Chinese, worth $223.3bn.

China is on track to become the world's largest economy by 2030 with the country's economic output forecast to increase from $10.4 trillion in 2013 to $25.4 trillion in 2025. That will lead to a continued and healthy flow of out-bound investment around the world, as Chinese investors seek new targets for their money.

Shanghai-based Bernd-Uwe Stucken is an foreign direct investment expert with Pinsent Masons, the law firm behind Out-Law.com.