The Belt and Road Initiative (BRI) is redefining the targets and scope of China's outbound mergers and acquisitions (M&A), and transforming how investments are being funded. A Commerzbank white paper released on 27 June 2018 estimates that there were 450 Chinese acquisitions into Western Europe in 2016-2017 valued at US$120 billion, of which 300 were in the 74 BRI countries worth US$60 billion.
BRI is also influencing trends in Chinese exports, financing and risk management. In particular, it is altering the corporate profile and financing requirements of Chinese companies, with increasingly sophisticated requirements for cross-border and financing solutions relating to key BRI corridors. BRI, as Commerzbank points out, is helping to influence how Chinese companies talk to governments, engage with local investors, regulators and population, learn about cultural obstacles, raise funds from international investors and attract partners with a view to enhancing their global standing.
Through BRI, the Chinese companies are also helping to change perceptions by outlining their intentions to protect jobs and safeguard technology — a manifestation that they are learning fast how to overcome new challenges. It is also driving where transactions are being done. While Chinese deal volumes have fallen in the US and Europe during the past couple of years, BRI-related investments have risen considerably. So far, China has spent more than US$87 billion on BRI investment with US$60 billion of foreign direct investment and US$27 billion on infrastructure projects, according to the ministry of commerce.
M&A deals between China and European Union countries should increase in the next few years, Commerzbank points out, particularly as the US becomes more challenging for Chinese companies and more European companies take advantage of being at one end of the BRI. It says Germany remains a priority for Chinese acquirers given its high technology capabilities and the high regard for "Made in Germany". Although the multi-billion euro China-German deals, such as the Midea/Kuka and Geely/Daimler, dominate the headlines, there are many low profile mid-market transactions being undertaken by Chinese buyers wishing to venture into the German SME arena across a range of sectors.
BRI is likewise providing the Chinese companies with the opportunity to highlight they no longer deserve the reputation as technology and asset hunters, and instead offer high value products and services. China is now regarded as a serious player in mobile phones globally in terms of higher-end models due to the emergence and expertise of Huawei and Xiaomi. This growing expertise is increasingly being used to sweeten deals, says Commerzbank. For instance, in January 2017 Chinese group Sirio Pharma's acquisition of Ayanda, a leading European softgel manufacturer, was sold to investors as creating more value to European customers due to the Chinese company's production capability. As such, this corporate evolution from being a home of low-cost manufacturing making parts and goods for multinationals to being a producer of high value products is shaping the BRI M&A landscape, and also being fed by it.
In 2007 China accounted for only 1% of the value of global cross-border M&A. But this figure surged to 14% in 2016 and the nature of transactions is changing drastically, with BRI-related M&A increasingly being favoured.
