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The Boston Consulting Group (BCG) published the latest research report and pointed out that China is starting an overseas merger and acquisition (M&A) wave worldwide.

 

This report conducted an in-depth analysis of 776 M&A cases that were initiated by 13 fast-growing economies including South Africa, India, Malaysia, Brazil, Mexico, Turkey, Russia and China and targeted developed nations from 2000 to 2004. It shows that although China takes up 30 percent of the total GDP of global fast-growing economies, its enterprises only took part in 82 overseas M&A cases, constituting only 11 percent of these 13 countries' overall offshore M&A. China's M&A strength far lags behind that of India and South Africa.

 

At the same time, 62 percent of Chinese companies' M&A cases targeted Asia, with Kazakhstan, Hong Kong, Indonesia and South Korea being the largest destinations. The remaining nations were the US, Australia and other nations in South America, North America and Oceania. To date, Chinese enterprises were involved in few big M&A cases abroad, with the average transaction volume reaching between 180 million and 280 million US dollars. Only four M&A transactions had a value of more than US$1 billion each.

 

It is learnt that since 1986, China has started four overseas M&A waves. The first wave lasted around a decade and focused on offshore investment. The second took place during the 1996-1999 period and was triggered by Hong Kong's return to China; enterprises began to switch their attention to overseas expansion. Starting in 2000, the third M&A wave highlighted domestic expansion and Chinese companies bought shares of joint ventures held by their foreign partners one after another since most of these joint-venture contracts expired at that time.

 

According to BCG Senior Vice President and Director David Michael, the current M&A wave of Chinese firms overlaps the third to a certain degree, since it surfaced at the end of 2001 when China was about to enter the World Trade Organization. Different from the past, offshore expansion has won a dominant role and mining, energy as well as technology and communication have become the most popular industries that practice M&A.

 

David Michael pointed out that compared with their western competitors, Chinese purchasers encounter more difficulties in winning M&A battles due to an underlying reason -- politics. Most people in western countries are not prepared for Chinese enterprises' overseas expansion, so they will feel uncomfortable when their domestic natural resources are purchased by companies from another nation with a distinct regime from their own. In addition, they worry that if the buyers are the low-cost Chinese firms instead of western ones, existing employees are more likely to be dismissed.

 

Michael explained that compared to M&A players from other nations, Chinese enterprises actually have fewer employment reductions because they have relatively less degree of the productive duplication than their rivals from the west.

 

This report believes that despite the failure of some Chinese companies' recent overseas M&A transactions, offshore M&A has become a trend of Chinese companies' development and will grow stronger with time.

 

(Chinanews.cn May 10, 2006)