A quick update to a post from May about a paper from PricewaterhouseCoopers, the business advisory services firm, on the changing trends in M&A in China. We have now somewhat belatedly come across a 12-minute podcast version.
Three members of the firm, Alan Chu, China Business Services Leader in the U.S., Curt Moldenhauer, Transaction Services partner in Shanghai and Malcolm MacDonald, Transaction Services partner in Beijing, discuss the impact of the new five-year plan on M&A and the prospects for domestic, inbound and outbound deals as a result of Chinese firms having a combination of access to a fast growing domestic market and cheap capital. No great surprises, to our minds, but the trio rounds up the trends and issues into a coherent overview.
Filed under Economy, Markets
The marketplace for M&A deals in China is changing, with many western companies fearing a less hospitable reception as a result of new tax rules and regulations. PricewaterhouseCoopers, an international management consultancy, has a new paper in its 10 Minutes series arguing that the change is far broader than that as China’s priorities shift from acquiring capital to accelerating structural reforms, a change that “calls for a fundamental shift in deal-making strategy” on the part of foreign companies.
Its key points:
- Inbound and outbound M&A in China is booming, as Chinese industries consolidate domestically and expand globally.
- Foreign investors are entering or expanding in China for the China market instead of just manufacturing in China for export markets.
- As a result, they are reassessing what Chinese partners bring to the table and cautiously exploring alternatives to wholly foreign-owned enterprises.
- Private equity has emerged as an important provider of growth capital.
- Some investors recognize that new regulations affecting M&A may be creating short-term concern, but the long-term trend is toward greater clarity in a maturing system.
Those highlights read a bit penny plain, and the underlying piece adds some color, but do they fit with your experience?
China plans to vet proposed foreign takeovers of Chinese companies in the interests of national security. The State Council says it is establishing a ministerial level committee under the National Development and Reform Commission and the commerce ministry. It will start work next month and look at proposed foreign acquisitions in areas involving national defense, agriculture, energy, resources, infrastructure, transport, technology and equipment manufacturing. It will assess their impact on economic stability, social order and the country’s technology R&D efforts.
China is not the first country to set up such inter-agency scrutiny, though not many have given theirs such a broad remit. The U.S., for example, has its Committee on Foreign Investment in the United States (CFIUS). Its mandate is narrowly national security, though some conservatives want it broadened and the committee strengthened in response to China’s growing foreign direct investment.
China attracted $106 billion in foreign direct investment in 2010, up 17% on the previous (global financial crisis wracked) year. Foreign companies have not previously faced formal review of their proposed direct investments in China on national security grounds, although informal barriers have long existed and Beijing has always held an ultimate veto. In 2008 China introduced an anti-monopoly law (and promised the national security review mechanism that has now been announced). Coca-Cola’s $2.4 billion bid to take over Huiyuan Juice in 2009 was one that got stymied on competition grounds. Before that ArcelorMittal and Russia’s Evraz Group were rebuffed in attempts to buy into the steel industry.