China is reaching out in several sectors to purchase more foreign businesses.
Recent data shows that between 2009 and 2011 merger and acquisitions by Chinese companies of overseas entities jumped 75 percent to $28.1 billion.
Lux Research identified such industries as energy storage, advanced lighting, emerging electronics and red-biotech as those involved with M&A with foreign businesses and also involved with bringing foreign businesses into China.
“Companies in these sectors have both strong foreign growth inclination and strong willingness to introduce appropriate foreign partners into China. In comparison, water treatment and construction material industries are closed to foreign growth and introduction,” according to the Lux Research report.
In addition, foreign companies also got involved in M&A in China – with 16 times higher levels from $400 million to $6.9 billion, Lux said.
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“All indications are that this is only the beginning,” Lux Research predicted in a recent statement.
"From Chinese companies` perspectives, acquiring advanced technologies globally and entering foreign markets are major goals as they seek to shed the tag of a low-cost manufacturing hub," Zhuo Zhang, lead author of the new Lux report, "From the Horse`s Mouth: How Chinese Companies Value Foreign Partners and Opportunities."
"Entities around the globe need to navigate the new reality of an increasingly crowded market in China where global leaders must learn to operate while developing strategies to face the imminent threat in their own backyard," Zhang added in a statement.
Lux also found that Chinese companies, which have more IP portfolios, are more open to foreign partnerships. Some 51 percent of companies with “strong” IP are open to partnering with foreign entities in China, compared to only 31 percent of those with “weak” IP, Lux said.
Also, Chinese companies with weak government relationships were more likely to increase M&A with foreign businesses. Relationships with the Chinese government lead to more domestic sales channels for Chinese companies, Lux explained.
New data suggests that the trends are continuing. As of Dec. 21, 2012, Chinese acquisitions involving foreign companies were 28 percent higher compared to the same period in 2011.
“An increase in overseas investment by Chinese companies is an inevitable trend,” China’s commerce minister, Chen Deming, said in a statement quoted by The Times in December. “With foreign reserves of $3 trillion in hand we will not sit back and watch the assets depreciate with the third round of quantitative easing. We must inject it into the real economy and make our contribution to global prosperity.”
Several new M&A deals are likely to take place in China by the summer.
There are some hurdles when completing such deals. China requires three or more government agencies to approve a foreign acquisition — the Ministry of Commerce, the National Development and Reform Commission and the State Administration of Exchange Control. The Ministry of Industry and Information Technology may need to be contacted, as well. In the case of U.S.-based businesses, Cfius (the Committee on Foreign Investment in the United States) reviews deals to make sure they don’t run counter to U.S. national security. Cfius review could limit or delay deals from going through with Chinese businesses.
Edited by Brooke Neuman