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'Massive overseas mergers' on horizon

Publication Date : 10-09-2012

 

The slowdown in China's overseas investment growth and some reported losses will not affect the pace and confidence of domestic companies going global, and the nation's investors will eventually reach their goals in developed markets, said Eddie Chen, vice-president of Invest Sweden.

"China's strategic focus was to attract foreign investment in the 1990s, and inbound investment and outbound direct investment has struck a balance in the first decade of the 21st century," Chen said in an interview on Friday.

"This decade we will see massive overseas mergers and acquisitions by Chinese enterprises."

A witness to the growth in Chinese ODI over the past 10 years, Chen has been involved in more than 100 overseas acquisitions. In his view, many domestic enterprises have the needed complexity and professional level and the volatile international economic climate presents tremendous opportunities for companies with strategic vision.

"The Chinese enterprises' overseas investment will still focus on developed countries and we will see a number of cross-border investors," said Chen.

Data released in August by the Ministry of Commerce showed China's ODI flows in 2011 reached a $74.65 billion, 27.6 times the level of 2002. But the growth rate dropped to 8.5 percent, well below the average from 2002 to 2011.

China's global ODI rank also fell slightly, from 5th in 2010 to 6th in 2011.

Shi Ziming, commercial counselor at the ministry's department of outward investment and economic cooperation, said 77.6 percent of non-financial enterprises registered a profit in their overseas businesses, while 22.4 percent reported losses.

Overseas M&As by Chinese enterprises differ from the mergers within Western countries. They bring not only capital, but also the opportunity to explore the Chinese market. It is a brand new development, Chen said.

"Capital can immediately play a role when the money is laid out, but exploration of the market will take some time to complete," he noted.

Citing the acquisition of Volvo by Geely in 2010 as an example, sales in its first half fell 4 percent compared with the same period last year, while earnings before tax and interest in the first quarter dropped to 2.39 billion kronor from 1.53 billion kronor ($35.63 million).

"The return on investment in Volvo has not yet begun, but with the final plant investment in China, Volvo will gradually expand in the market and see a rise in sales," Chen said.

"If the acquisition in developed countries by Chinese enterprises was only predicted in the last two or three years, it has become a reality now," Chen said.

 

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