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November 05, 2010

Chinese Companies Chasing Foreign Assets

by Heda Bayron

A new survey of Chinese companies says many are planning to acquire overseas assets in the next three years. Cash-flush Chinese companies are looking for new markets and know-how for their businesses.

China's biggest state-owned bank, the Industrial and Commercial Bank of China, recently announced it has acquired a U.S. securities brokerage for one dollar. The sale of Prime Dealer Services, a small unit of Fortis Securities, required ICBC to take over the company's debts. ICBC says it is also looking to acquire assets in Southeast Asia.

Last month, the state-owned China National Offshore Oil Corporation bought a one-third stake in a Texas natural gas field.

These are just few of an increasing number of Chinese acquisitions worldwide. Last year, Chinese companies invested about $43 billion in overseas mergers and acquisitions.

Jeremy Fearnley, head of mergers and acquisitions at the consulting firm KPMG in Hong Kong, says Chinese companies - both state-owned and private businesses - are seeking acquisitions overseas.

KPMG surveyed more than 150 executives of Chinese companies on their plans for overseas investments in the next three years.

"Eighty-five percent of the people we interviewed are looking to do M&As," said Fearnley.  "Everyone has it on their agenda really."

Most of the companies surveyed with less than $150 million in revenue say they are looking to invest in Asia, while about half of respondents with larger revenue are planning to snap up assets in North America and Europe, as well as Asia.

"Where we see people looking more to the U.S. and Europe are really to acquire IT, brands, and technology - assets that they can then [use to] take their business to the next level," added Fearnley.  "Now that might be to export more in those overseas markets. Alternatively, it can be to sell more of those products using a better known international brand or using high technology to give it an advantage in their local market or into China."

For example, Chinese carmaker Geely completed its acquisition of Ford Motors' stake in the Swedish carmaker, Volvo, in August. Volvo plans to open new factories in China and sell Chinese-made cars in Europe.

Chinese companies have invested widely in Africa and Latin America too, mainly in mining and oil and gas, as part of the country's strategy to ensure a supply of raw materials for its fast-growing economy.

However, in the past, Chinese investments in strategic U.S. industries such as energy have failed due to security concerns. In 2005, CNOOC, the same company that bought into the Texas gas field, failed to take over Unocal. Anshan Iron and Steel's joint venture with Steel Development Co. to build a reinforced bar factory in Mississippi faced opposition from some U.S. lawmakers.

The KPMG survey says Chinese companies' relative inexperience in deal-making, cultural differences and decision-making processes sometimes hamstring their abilities to close deals. The majority want to have Chinese control of their target companies, although others are more pragmatic when faced with ownership restrictions.

Chen Jian, China's vice minister for commerce, this week urged the U.S. to open up to more Chinese investments. The ministry said Chinese investments in the U.S. for the first nine months of the year rose 530 percent from last year.