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Favorable policy environment impels Chinese companies to invest overseas

2016-12-27 10:26

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China's Ministry of Commerce (MOC) recently announced that Chinese companies made a total of 161.7 billion U.S. dollars of non-financial investment in 7,500 foreign companies of 164 countries and regions in the first 11 months of 2016, surging 55.3 percent from last year's corresponding period.

In November alone, China's outbound direct investment amounted to 15.74 billion dollars, up 76.5 percent on year.

MOC spokesman Sun Jiwen said that Chinese enterprises conducted investment in a wide range of areas, with the manufacturing sector accounting for nearly 30 percent of the total M&As.

Preliminary statistics showed that the number of merger and acquisition projects by Chinese companies totaled 561 in the first 11 months, with transaction amount at some 82.4 billion dollars (including overseas financing), and they involved almost all industries.

Of the total amount, the manufacturing sector accounted for 23 billion dollars. The rapid growth of outbound investment by Chinese enterprises apparently was attributable to favorable policy environment.

Since 2014, China started to simplify approval procedures for outbound investment and introduced the filing management system.

Moreover, banks have been entitled to directly handle foreign exchange registration under outbound direct investment.

The policy adjustment has led to soaring outbound investment by local enterprises. The statistics showed that outbound direct investment by China's local enterprises accounted for 87.7 percent of the total non-financial investment from January to November. They invested 141.84 billion dollars in the period, 2.1 times the figure for the same period of the previous year.

"Investment in sensitive areas, countries and industries still needs to be approved by the National Development and Reform Commission (NDRC), investment exceeding 2 billion U.S. dollars needs to be reported to the State Council, while other cross-border investment projects just need to be filed with the NDRC for record," said Zhou Lei, head of the M&A department of the China International Capital Corporation (CICC).

According to Zhou, the sensitive industries include telecommunication, water resources utilization, large-scale land development, power grid, arteries, media and press. The MOC has also introduced a similar system for handling outbound direct investment by Chinese firms.

"Except that investment in sensitive areas and sensitive industries is still subject to approval, all other investment just needs to be filed for record," said Lan Jie, a partner of law firm Haiwen & Partners.

Currently, it only takes seven days for the NDRC and three days for the MOC to complete the filing process for a single case.

Since 2006, overseas M&A transactions by Chinese enterprises have increased sharply. The number of the cases stood at 498 in 2015, and it has reached 561 in the first 11 months of this year. For 2015 and the first half of this year, both the number of M&As and the amount involved smashed records.

China National Cereals, Oils and Foodstuffs Corporation (COFCO) bought a 51 percent stake in Noble Group in April this year, following its first purchase of 49 percent of the group in 2014.

Noble Group has set up factories in 25 countries and regions, and the acquisitions have enabled COFCO to tap the market in South America with Noble Group's global supply chain.

After acquiring shares in Western Digital, Siliconware Precision Industries Co., Ltd. and ChipMOS Technologies Inc. in 2015, Tsinghua Unigroup bought 51 percent of Hewlett-Packard Co.'s China-based H3C computing unit in May this year.

Through the deals, Tsinghua Unigroup has achieved its goal of developing a complete IT industry chain from chip design and manufacturing, to equipment R&D, integration of software and system.

The group aims to build a global semiconductor network through international M&As and create the third largest storage chip maker in the world.

Analysts say that Chinese companies are very active in the international M&A market for the sake of obtaining advanced technology, brands, resources, market channels and advanced enterprise management experience so as to achieve the goal of globalization in each part of the industrial chain.

On their path toward globalization, overseas M&A is of great significance for Chinese companies to sharpen their international competitiveness in terms of technology and brand, exploit the global market, and ward off the risk brought about by fluctuations of the RMB exchange rate. 

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