BEIJING -- "Outbound M&As used to account for three fourths of China's total M&As, but things have changed this year with inbound M&As seeing a notable rise, accounting for half of the total," said an insider from the investment banking division of a leading security company.
By November 22 this year, inbound M&A deals totaled 51.65 billion U.S. dollars, up more than 40 percent on year, according to data released by Refinitiv, formerly Thomson Reuters Financial & Risk Business.
From January to October this year, the new enterprises invested by foreign capital in China numbered 49,545, a year-on-year increase of 89.3 percent, and the direct foreign investment reached 701.16 billion yuan, a year-on-year increase of 3.3 percent, according to the data released by the Ministry of Commerce (MOFCOM) on November 15.
China's opening-up measures fuel foreign investment
The uptick in inbound M&As could be partly attributed to series of opening-up measures introduced by Chinese government.
In June, China released a shortened negative list for foreign investment, cutting items on the list down to 48 from 63, relaxing investment entry restrictions for 22 fields. Another new negative list was unveiled later in the month for foreign investment in FTZs, with listed items down to 45 from 95 in the previous version.
"The year of 2018 marks the 40th anniversary of China's reform and opening up. China's Report on the Work of the Government released earlier this year has made it clear that further relaxing market access would be a focus for such period. Both new negative lists have greatly relaxed market access to the service sector, while allowing access to manufacturing sector and relaxing access to agriculture and energy," said Shi Miao (Cherrie), a partner in Baker McKenzie’s Shanghai office.
As to automobile, under the negative list that became effective on July 28 this year, limits on foreign ownership of special vehicle and new energy vehicle manufacturing have been removed since July 28, and those of commercial vehicle manufacturing will be eliminated by 2020, and passenger vehicle manufacturing by 2022. Moreover, restrictions on the number of joint ventures possessed by a foreign company in China will also be lifted by 2022.
Following the new rules, Germany's BMW Group declared a plan on October 10 to increase its stake in BMW Brilliance Automotive, its venture with Brilliance China Automotive from 50 percent to 75 percent. Meanwhile, Tesla, the US-based electric vehicle industry leader, also announced its plan to set up a wholly owned super factory in Shanghai Lingang Area.
As to finance, at this year's Boao Forum for Asia, Yi Gang, governor of the People's Bank of China, put forward more than ten specific measures to further open up finance industry, covering many aspects such as market access, restrictions over foreign ownership and the scope of business.
"This move represents the biggest opening-up policy of finance sector over the past decade," said Fan Lei, consultant within Baker McKenzie.
Take insurance industry for example, on May 23, Japanese insurance giant Mitsui Marine & Fire Insurance Company declared an investment of 74.7 billion yen (about 4.3 billion yuan) to purchase a 37.5 percent stake in BoCommLife Insurance Company Limited, a subsidiary of Bank of Communications.
With a 50 percent stake in AXA Tianping Property & Casualty, France-based AXA announced on November 27 that it had entered into an agreement with the five domestic shareholders including Tianmao Industry Group to purchase the remaining 50 percent stake. The completion of the deal will see AXA become a foreign insurer to own 100 percent of AXA Tianping in China.
In securities industry, JP Morgan Chase, Nomura and UBS have submitted application materials to China Securities Regulatory Commission (CSRC) to set up a majority ownership securities (holding 51 percent stake in the new firm) in China. In addition, on November 1, Japan-based Daiwa Securities Group Inc. announced its collaboration with Beijing State-owned Capital Operation and Management Center (BSCOMC) to establish a joint venture brokerage, 51 percent shares of which will be controlled by Daiwa and 49 percent by BSCOMC.
Listed companies grow interest in attracting foreign investment
Analysts say that domestic listed companies also grew interest in taking in foreign investment due to difficulties in the secondary market.
Since Chinese stock market has been sluggish over the past three years with the benchmark Shanghai Composite Index on December 6 closing at 2,605.17 points, plunging nearly 50 percent from the peak of 2015 at 5,178.19 points in 2015, many high-quality listed companies are struggling in low stock price and low valuation. They are forced to look for elsewhere for more capital.
"Due to capital shortage and the urge to draw useful resources and management experience, markedly increased customers entrusted us to help them seek for overseas funds in the past three months," said Feng Lin, CEO of DealGlobe.
"Both greenfield investment and M&As are in full swing. There may be some companies to do so out of tight liquidity. But compared with bargain-hunting, many foreign investors attach more importance to the quality of the assets themselves. Also, some large foreign companies are eyeing an expansion in China to avoid risks in international trade, reflected by the spike in large industrial projects in China...In general, attracting foreign investment is for a win-win." said Shi Miao.
5 to 10 years needed for overall opening-up
"Although a clear timetable for all-round opening-up has been mapped, it is not very likely to see significant changes in automotive joint ventures in the next decade...The Chinese partners of Sino-foreign joint venture automakers are all large in size and enjoy long-term joint venture partnership. Therefore, the proportion of shares is going to maintain the status quo, at least in the short run," said Shi Miao.
According to Shi, the transfer of controlling shares between foreign and Chinese partners takes time, especially in finance and automobile industries. Domestic partners in joint ventures are usually large enterprises like big state-owned enterprises, which have a greater say in general. In this sense, Shi predicted that it could take 5 to 10 years to achieve overall opening-up. (Edited by Niu Huizhe, niuhuizhe@xinhua.org)
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