Outbound M&A deals reach historic high
The volume and value of Chinese outbound M&A deals reached a historic high in the first quarter of the year, according to a report from PricewaterhouseCoopers, while the "Belt and Road Initiative" is likely to bring new merger and acquisition opportunities for enterprises in years to come.
The study said 77 Chinese mainland outbound deals were signed in the first three months, worth $20.2 billion.
"Easy monetary policies, low interest rates and a significant surge in the Chinese stock market also helped drive deals," said Guo Wei, PwC's China transaction service partner.
The report said Asia was the third most popular destination for Chinese mainland outbound deals in the period, just behind Europe and the US.
"This reflects the strategy by Chinese companies to transfer their manufacturing bases and develop in other emerging markets," said Kevin Wang, PwC China's tax partner.
"The 'Belt and Road Initiative', Silk Road Fund and Asian Infrastructure Investment Bank will significantly boost Chinese investments and acquisitions in countries along the trade routes, especially in Southeast Asia." The Chinese government has raised the initiative to the national development strategy level, the report said, which will drive the outbound acquisition and investment activities of domestic enterprises.
It said the investment preference has been shifted toward developing countries in Central Asia, East Europe, Southeast Asia and North Africa away from developed countries.
Specific target industries have also changed, meanwhile, to infrastructure from traditional sectors such as mining and manufacturing.
Strong investment is also likely to be made in high-speed rail, electricity, telecom, engineering machinery, auto and aircraft manufacture.
"The Silk Road Fund, Asian Infrastructure Investment Bank and the BRICS Development Bank, all led by China, will facilitate financing methods for enterprises to make foreign investment," said Wang.
"The globalization of the renminbi will also offer further financing options for future overseas M&A projects." The report said private enterprises have continued to be the main driving force behind China's overseas M&A transactions, making 52 deals in the first quarter of 2015, against 16 by State-owned enterprises.
However, outbound deal activity by SOEs maintained steady growth in 2014.
"The 'Belt and Road Initiative' will create a new model. State-owned enterprises will lead infrastructure projects, and private enterprises will be a creator of manufacturing projects, which means SOEs will lay the foundations for private enterprise," said the report.
According to Wang, tackling what the report described as often complex and incomplete tax regimes is likely to be the major challenge ahead for Chinese enterprises in landing foreign investments.
He said before embarking on any overseas M&A transaction, a company should carry out thorough due diligence to assess the tax risks and figure out possible alternatives to the project.