China Overtakes US in M&A Deals

Chinese companies have overtaken US firms in terms of volume of cross-border merger and acquisition deals.

During the first quarter of the year, Chinese companies closed M&As amounting to $173.9 billion, up 68% from the same period last year, according to the US-based financial data provider Dealogic, AsiaFirst reported.

The amount effectively dislodged US as leader in this arena. With this development, bankers, academics, and investment pundits said that China is making a significant impact on the global industrial structure.

Hong Qi, chairman of China Minsheng Banking Corp provided reasons for such a great leap for China, including an ongoing supply-side reform, which has provided important policy direction for economic transition and industrial reorganization in China.

Hong said emerging industries are also leaning toward large-scale integration. Such factors, he explained, provide a conducive environment for the M&A market to blossom.

China’s outbound shopping spree probably peaked this year—but there’s still plenty of interest in buying up companies, say analysts.

Earlier this month, Beijing announced it was increasing oversight of international acquisitions, the latest move in a bid to stem capital flight and protect the weakening yuan.

The added scrutiny, coupled with heightened uncertainty stemming from European elections and Donald Trump’s inauguration as US president, may see the volume of outbound M&A deals brought down next year after hitting record highs in 2016, as inexperienced companies wait on the sidelines and investments that lack obvious rationale get pushed back.

China’s non-financial overseas direct investment increased 55.3% year on year between January and November, China’s Ministry of Commerce announced this week, according to a Shanghai Daily report.

While an overseas buying spree by Chinese companies has grabbed headlines, more mundane activity such as trade finance and corporate cash management are a much bigger strain on China’s foreign exchange reserves, analysis of official data shows.

The dominance of bank lending and portfolio investment as a source of Chinese capital outflows casts doubt on whether Beijing’s recent clampdown on big-ticket foreign deals by the likes of Dalian Wanda and Anbang Insurance can shield the renminbi from downward pressure, intensified by the US Federal Reserve’s interest rate rise on Thursday.

Bank lending and securities investment accounted for $301 billion in net outflows from China in the first nine months of the year, compared with $78 billion from outbound foreign direct investment, according to Financial Times analysis of balance-of-payments data.