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Outbound M&A to stabilize in H2

Lin Wenjie
Updated: Aug 12,2017 7:25 AM     China Daily

The second half of the year will see China’s outbound mergers and acquisitions stabilizing, in the wake of the slump in the first six months, according to a new report issued jointly by the China Mergers & Acquisitions Association and international accounting firm EY, formerly Ernst & Young.

The report estimates that a total of $100 billion of non-financial ODI, or outbound direct investments, will take place in 2017 — the vast majority of them M&A — representing a 45 percent decrease on the previous year.

The forecast second-half stabilization in M&A activities is partly attributed to the increasing investments in Belt and Road economies.

“Investments in Belt and Road economies have seen increases in the first half, reflecting the fact that the initiative is beginning to play a leading role in the globalization of Chinese companies,” said Chen Shuang, rotating chairman of the CMAA and the chief executive of China Everbright Ltd.

Data from the Ministry of Commerce showed that China’s non-financial ODI flows in countries and regions participating in the Belt and Road Initiative reached $6.6 billion between January and June this year, representing 13.7 percent of the total non-financial ODI flows.

The latest figure was a 6 percent increase on the same period last year. The remaining 86.3 percent flowed to non-B&R countries, including the US and the UK.

Ministry data also showed that the amount of newly signed engineering, procurement and construction contracts in countries involved with the B&R increased 39 percent to $71.4 billion in the January to June period.

“In the meantime, buyout funds with deep insight and resources are playing an increasingly important role in overseas M&A, as they can help Chinese companies manage risks more effectively and succeed overseas,” Chen added.

EY, at the report release on Aug 10, emphasized that prospects for China’s outbound investments remain positive over the long term.

It said the country’s ODI flows would overtake those of the United States in the next decade, with M&A continuing to be the major route for Chinese companies to integrate into the world economy under the nation’s “going out” policy.

The first half fall in China’s non-financial ODI flows reflected tighter policy controls and an unpredictable global political and economic environment. It also showed Chinese companies became more rational about their overseas investments and managed to optimize their investment structures, the joint report found.