Amid the global economic and business uncertainty brought in by the novel coronavirus pandemic, more foreign businesses are investing in Chinese companies and buying them up which includes deals being made in the more sensitive industries of finance and technology of China.
“Over the past 18 months, we have recorded levels of foreign M&A (mergers and acquisitions) into China that were not seen in the previous decade,” research firm Rhodium’s partner Thilo Hanemann and founding partner Daniel H. Rosen wrote in an online report released recently.
“Most of that activity has been driven by American and European firms taking advantage of looser foreign ownership limits or betting on Chinese consumer demand,” the report said.
Over the last few years, the Chinese government has opened up its market to foreign business in a phased manner and also reduced some of the strict restrictions on wholly-owned foreign operations in some industries.
In particular, the interest of many the foreign financial institutions are in purchasing a majority stake in their own Chinese joint ventures while also applying for licenses to be granted to them to allow them to manage more of the local money.
Following a recently held high-level annual financial conference in Shanghai, the top regulators of China have stressed on the need for continuation of the policy of opening up the local capital markets of the second largest economy of the world to foreigners.
“The market in China is very big and lots of these foreign (corporate) investors, they are looking at the long-term business development in China,” Martin Wong, managing partner of the insurance sector for the financial services industry at Deloitte China, said in a phone interview early last week. “They’r’e not looking at the short and medium term.”
However this rising business interest in China is in contrast to the geopolitical tensions existing between China and many western countries.
For example, in addition to the already raging trade war between China and the United States, the Covid-19 pandemic has also opened a new front for US president Donald Trump against China. Trump has alleged on several occasions that the Chinese authorities had not been able to adequately manage the pandemic at its initial stages in China and had not disclosed vital information about the disease to the rest of the world which could have prevent the spread of the disease at such a large scale globally.
According to data disclosed Thursday by China’s Ministry of Commerce, Chinese companies are investing less overseas because of the current economic and political uncertainties. However in May, there was a 7.5 per cent growth in foreign investment year on year to 68.63 billion yuan ($9.87 billion).
One of the other reasons that has resulted in the recent investment trend, according to the Rhodium report, is that fact that Chinese businesses have now become leaders in some industries – partially through the rise of start-ups and government policy support.
“For the first time, therefore, it is attractive for foreigners to buy technology and industrial assets rather than build from scratch,” the authors wrote.
(Adapted from CNBC.com)