Why Chinese Companies Are Interested in Overseas M&A

October 15, 2014

Li Xiaoyang, CKGSB Professor of Economics and Finance, fielded questions from Korean investors on the reasons why Chinese companies are eyeing M&As between overseas and Chinese companies, amid a backdrop of Chinese government regulation, and the encouragement of M&As among private companies. Li was speaking at the 15th World Knowledge Forum at the Shilla Hotel, in Seoul, Korea.

At the 15th World Knowledge Forum, Associate Professor of Economics and Finance at CKGSB, Li Xiaoyang, outlined why Chinese companies are eyeing cross-border M&As. He explained the background that the Chinese government is currently encouraging M&As among private companies because there is no way to stop SOEs from acquiring private companies, and that M&As between private companies boost the domestic economy. Furthermore, the more household income increases, the more private companies’ investment flexibility increases. The link between companies’ own desire to expand their businesses and the government’s policy support has naturally led to more investment in the M&A market. Private companies’ M&A up until the 3rd quarter of 2014 reached $275.3 billion. Professor Li said he expected that, given the number of deals done in the first half of 2014, full-year results for 2014 would exceed expectations.

Professor Li sees four recent trends in the Chinese M&A market. The scale of M&A is increased by the industry’s representative companies, such as prominent Chinese IT companies like Baidu and Alibaba. Those pioneers take the lead and are typically followed by newer companies, creating a M&A trend. Until now, most M&As have been completed by SOEs, but in recent times, the acquisitions have been initiated by private companies. In addition, these companies look for M&A subjects overseas, and exit strategies for investments are diversified with smooth overseas investments. Most of all, Li said the relaxation of regulations to boost the economy has had the greatest impact. Lately, the Chinese government’s active support of hybrid ownership, with internal employees sharing in the acquisition, has been one of the positive factors invigorating the M&A market. Furthermore, investment has also expanded due to highly-developed, innovative technology and the Chinese currency’s internationalization.

Read the original Korean article on the Maeil Business Newspaper website here.

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