China is emerging as a global investor, as numerous cross-border M&A deals attest. Andreas Lunding of Deutsche Bank explores the isues in a new research report, Global champions in waiting: Perspectives on China's overseas direct investment (PDF). Here is the summary:
A recent string of high-profile cross-border merger and acquisition deals involving Chinese companies as acquirers, such as state-owned oil giant CNOOC’s attempted takeover of California-based Unocal in mid-2005, has increased the spotlight on China’s growing overseas direct investment.
Strong growth, but from a low base. Even though China’s ODI is expanding at a rapid pace, the country still trails most developed economies and several key developing nations in terms of both its accumulated ODI stock and annual flows.
Energy needs and domestic competition key drivers. The bulk of current Chinese ODI is driven either by the country’s increasing need to secure overseas energy and raw material resources or as a countermeasure to intensified competition and overcapacity in a number of key sectors of the domestic economy. The acquisition of advanced technology, brands and managerial know-how also figures prominently as a driver for Chinese ODI.
Government support is increasing. The Chinese government’s financial and political support of ODI – under the slogan of ‘Going Global’ – has intensified in the wake of the country’s accession to the WTO in 2001. A key aspect of the government’s policy has been the development of internationally competitive ‘global champion’ enterprises.
Outbound Chinese M&A of growing importance. Cross-border mergers and acquisitions has gradually emerged as the dominant vehicle for Chinese ODI. The track record of these deals in terms of generating value remains mixed, however.
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