New M&A strategy called for

2018-01-09 09:27Global Times Editor: Li Yan ECNS App Download

Change needed as Western countries block Chinese deals

Chinese experts said on Monday that domestic firms should adapt their strategies in acquiring foreign advanced technologies or entering overseas markets amid rising desire in Western countries to guard their core technologies.

The comments came after reports that the German government had intervened in a takeover deal by a Chinese State-owned firm to acquire German aerospace parts supplier Cotesa GmbH over concerns about loss of core technologies.

A court case also began in Wisconsin, the U.S. on Monday over alleged theft of wind-turbine technology, concerning Chinese wind-turbine maker Sinovel Wind Group Co and Massachusetts-based American Superconductor Corp.

It also comes after a growing list of failed overseas merger and acquisition (M&A) deals by Chinese companies. Ant Financial, an affiliate of Alibaba Group, terminated its efforts to purchase MoneyGram last week after failure to win U.S. regulatory approval.

These developments are seen as obstacles for China's stated goal of becoming a manufacturing power under its "Made in China 2025" initiative and Chinese firms' desire to expand abroad.

Experts said Chinese advancement in obtaining more Western technologies and know-how to satisfy its own developmental needs and entry into Western markets must not stop, but there needs to be a change in methodology.

He Weiwen, an executive council member at the China Society for the WTO, told the Global Times that the Western concerns stem from the idea that their companies might lose market share if Chinese firms acquire core technologies.

One example of this was China's absorption of high-speed railway technologies from European countries and Japan, which led to China's prominence in the world's high-speed railway industry in just a decade, He noted. Now, Western train makers face a hard time competing for orders with Chinese companies.

New approach

Zhang Ning, a research fellow at the Chinese Academy of Social Sciences, suggested Chinese companies should give up efforts to obtain controlling stakes in M&A targets given the mounting challenges.

"Chinese companies could unite with other bidders, preferably from the target company's home country, and seek a minority stake instead," Zhang told the Global Times on Monday, noting that this would increase the likelihood of overcoming regulatory hurdles abroad.

He agreed with Zhang, saying that completely buying Western technologies could prove to be a difficult path in the future, especially in sensitive sectors such as semiconductors or sectors lacking reciprocity such as insurance.

"Companies planning overseas M&As should bear in mind that some Western countries such as the U.S. treat China as a rival and also try to muster all the resources they can summon, like PR agencies, banks and local partners in the country where the merger will take place," He told the Global Times.

"Buying existing technologies may draw opposition, but developing new technologies hand-in-hand with Western partners would not face such problems," He noted.

Another way to extend overseas direct investment (ODI) would be to set up new plants based on Chinese technologies, which would also create more jobs in overseas countries, said He.

Chinese ODI ranked No.2 in the world in 2016 by volume, but has been declining following government efforts to rein in irrational investment.

In the first 11 months in 2017, China's ODI dropped 33.5 percent year-on-year to $107.55 billion, China's Ministry of Commerce said in December.

Zhang said the Chinese government still backs ODI, with a series of regulations and guidance issued in 2017 to enhance predictability. "ODI in 2018 is expected to develop in a stable fashion."

The rising global market challenges do not appear to be dampening Chinese firms' ambitions. For instance, Chinese technology giant Huawei is reportedly making a comeback in the U.S. market with its new Mate 10 smartphones.


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