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China M&A

Jan. 20, 2016  7:05AM   Source: FT Chinese

An ordinary Chinese citizen who wishes to buy assets abroad can exchange only enough renminbi in a year to get $50,000. Fortunately for deal-hungry Chinese companies, they do not suffer the same constraints.

On Friday, Haier bought the General Electric appliance business for $5.4bn in cash. Dalian Wanda, earlier in January, acquired film studio Legendary Entertainment for $3.5bn after sniffing around Hollywood for years looking for content (in 2012 it grabbed cinema chain AMC Entertainment for $3bn). A Chinese group has jumped into the bidding war for Fairchild Semiconductor. And most brazenly, ChemChina is reportedly considering an all-cash bid worth SFr35bn for Syngenta AG. Just a few weeks into 2016, $12bn of Chinese outbound M&A has been announced — a pace that, if maintained, would shatter last year’s record of $112bn. The interest of Chinese companies abroad is natural. As the country has prospered, its companies have grown large enough to chase big targets in more mature markets. Their ability to apply lower operating costs has also enabled them to write bigger cheques.

A decade ago, political and regulatory resistance based on national security concerns was strong (consider failed bids for Unocal, Dubai World Ports and 3Com). And while concerns linger, Chinese companies have become much more sophisticated about navigating foreign deal processes and other nations have become tolerant of Chinese ownership.

Chinese buying of foreign companies does not always mean renminbi leaving the country. They may have foreign currency available for M&A, or can raise money abroad.

For Chinese companies using their home currency, however, local banks and the State Administration of Foreign Exchange have remained supportive of dealmaking for strategic assets. Some dealmakers note that the country could change its tune at any moment, as erratic monetary policymaking since last summer indicates.

But for companies looking to sell, the most capable and confident buyers are coming from the east.