This early morning while I was having my cappuccino and croissant at the starbucks just in front of my office, my attention was attracted by an article about Outbound M&A activities conducted by Chinese corporations reported by the China Daily, and I was deeply impressed. M&A is my favourite topic so I read carefully the article and I discovered that CNOOC Ltd.’s $15.1 billion takeover of Canadian oil and gas company Nexem Inc., first announced in July 2012, was completed last month, making China’s largest ever successful overseas acquisition. Even though Chinese companies, both State-owned and private, have been encouraged to make overseas investment since the late 1990s, it was not until recently that China has heavily pushed its “going out” policy. Indeed, China’s overseas investments have increased exponentially in recent years. Between 2009 and 2010, two Chinese state-owned banks lent more money to other developing nations than the World Bank did (
http://www.bbc.co.uk/news/world-asia-pacific-12212936
). Another impressive data is as follows, between 2002 and 2011, China’s outward foreign direct investment (OFDI) stock grew from $29 billion to more than $424 billion.
This clearly shows how powerful (financially talking) China has become in just five years. In fact, outbound M&A transactions were almost unknown concept to many Chinese companies before 2008 when the financial crisis erupted and caused many overseas assets to depreciate against the local currency (i.e. the RMB), making them more attractive for Chinese investors. Therefore, though so far my entries were about, mainly, the functioning of M&A in China, it is important to realize that foreign firms are not the only ones looking at, and structuring, M&A transactions as a new way to expand their business in Mainland China, but in recent years more and more Chinese companies have been looking to M&A as a way to expand overseas. Because of this, it would be a wise decision not only to look for M&A opportunities in China, but also to advertise yourself as an M&A opportunity to Chinese companies. Either way a link can be made that brings you closer to the Chinese market.
In particular the energy resources industry will continue to be the choice of many outbound Chinese companies. Since China joined the World Trade Organization, most Chinese companies’ overseas investment and acquisition has been in energy and natural resources industries. That is a result of China’s rapid economic development, which needs a stable raw material supply. The expansion of Chinese resources companies internationally has also brought employment opportunities to the target markets. (
http://www.chinadaily.com.cn/bizchina/2013-01/07/content_16091377.htm
).
Unfortunately, sometimes finding information about and contacting Chinese companies that are involved in ODI can be difficult for foreign firms. While the Chinese Ministry of Commerce has over 200 branches overseas and lobbies on the behalf of Chinese business interests, it is understaffed and lacks experience compared to such organizations as the US Chamber of Commerce which efficiently helps US business interests overseas through wide-ranging global contacts.
In China the only organization which has a similar function is the All-China Federation of Industry and Commerce, a national organization with regional branches in all the provinces, autonomous regions, cities and counties. Each regional branch may have a number of trade associations or chambers of commerce under its leadership. Its functions are as follows:
i) Guide the political thoughts of the personages of the non-public economic sector; ii) Facilitate the participation of the personages of the non-public economic sector in the country’s political life and social affairs; iii) Assist the government in administering and serving the non-public economy; iv) Boost the reform and development of trade associations and chambers of commerce; v) Promote the construction of harmonious labor relations (
http://www.chinachamber.org.cn/publicfiles/business/htmlfiles/qleng/s2569/index.html
).
The Ministry of Commerce has, naturally, an important role to play. In fact its mission is “To formulate the strategies, guidelines and policies of developing domestic and foreign … , draft the laws and regulations governing domestic and foreign trade, foreign investment in China, foreign assistance, overseas investment and foreign economic cooperation, devise relevant departmental rules and regulations. …. .
http://english.mofcom.gov.cn/column/mission2010.shtml
This should serve as basis for our further discussions about the functioning on M&A in China.
– Cristiano Rizzi