The state has re-emerged as China’s top overseas dealmaker in 2017 after authorities pulled back on an ambitious run of private offshore investment.
State-owned enterprises and funds announced $28.7bn in cross-border acquisitions in the first half of the year, greater than the $26.6bn in deals struck by private enterprise.
China Investment Corporation’s $13.8bn buyout of UK-based Logicor, one of China’s biggest deals of the year, is included in the tally of state deals.
The period marks the first time in a year and a half that the value of government-backed deals has surpassed private ones. Compared with the second half of last year, state deals have increased by 86 per cent while private transactions have tumbled by 40 per cent.
“We have the channels to communicate with the regulators,” said a director at a state-backed investment company on why fewer private and more state deals are getting done this year. “The government wants to make investments into tangible assets and state companies will better follow these guidelines.”
Until recently state investors alone fuelled China’s rise as a buyer of global assets. State-backed names such as Cnooc and Aluminum Corporation of China — with the guidance of regulators in Beijing — set the tone for how the country would deploy its foreign exchange reserves overseas.
But starting in the second half of 2015, following a loosening of regulation, private enterprise quickly became the face of Chinese global dealmaking. Companies such as HNA Group and Tencent Holdings took the mantle as the country’s most prominent acquirers.
Even at the height of state buying power in the first half of 2016 — when ChemChina agreed to buy Switzerland’s Syngenta for $44bn — deals such as the one Tencent inked for Finnish group Supercell for $8.6bn made the private sector the most powerful force in cross-border transactions.
Particularly frustrating for Beijing was a wave of bizarre acquisitions in which small resources groups bought video game developers and Hollywood studios.
All of that came crashing down at the end of last year when regulators became concerned that Chinese companies were using overseas acquisitions to move capital offshore.
China’s banking watchdog launched probes into the debt accumulated at companies such as HNA Group, Dalian Wanda, Fosun International and Anbang Insurance, and the systemic risk these borrowers pose to the country’s banking sector.
The companies have sharply cut back on their dealmaking and the chairman of Anbang has been detained by authorities, with his whereabouts unknown.
The crackdown has prompted state banks to halt financing for private deals this year.
“Only state companies, and only the bigger names,” a senior executive at a Chinese bank in Hong Kong said of the clients to which the bank is willing to provide overseas funding. “We don’t go with the regional or even provincial [state] names . . . It’s not just about getting completion. Even after completion, there are still investigations into deals.”
The effects on individual private groups have been observable. A state bank earlier this year pulled its funding for property conglomerate Zhonghong Zhuoye Group’s bid for New York-listed Brookdale Senior Living after revising its risk profile on the company.
The move has erased up to $4bn from the private dealmaking count in what would have been one of the year’s biggest private takeovers.