Chinese companies are always said to be planning a big overseas push. So far, the expected surge in cross-border acquisitions by mainland corporations has largely failed to materialise. In 2015, most will once again decide that overseas growth can wait.
The prospect of deep-pocketed Chinese companies snapping up overseas rivals has long excited bankers and lawyers. Yet cross-border activity has been more of a trickle than a wave. With three weeks to go until the end of the year, outbound merger and acquisition activity by Chinese companies totaled just $52 billion. That’s a fifth less than in the previous year, and the lowest total since 2009. The subdued tally stands in contrast with the boom in global mergers, where volumes so far this year are 37 percent higher than last year’s total.
Chinese groups have good reasons to be cautious. In many countries they now expect a hostile welcome from regulators and politicians. Canadian authorities spent months agonising before they finally approved the $18 billion takeover of driller Nexen by CNOOC, the Chinese state oil giant in 2012. Western technology and communications are mostly off-limits.
Getting rebuffed is sometimes for the best. Executives who can straddle Chinese and international business culture are scarce. Overseas expansion also means taking on foreign competitors on their home turf. Some, like tech group Lenovo – which has just bought mobile phone maker Motorola and IBM’s low-end server business – have learned how to operate in overseas markets. But such examples are still rare.
Chinese companies in any case have plenty of opportunities at home. Despite a slowdown, the world’s second-largest economy offers better growth than almost any other big country. Many groups will rightly conclude that getting bigger in China is a better use of their capital than venturing abroad.
Of course, some will take the plunge. E-commerce giant Alibaba, for one, could use its newly-listed stock to finance a big overseas acquisition. Chinese buyers will continue to snap up trophy assets like New York’s Waldorf Hotel, bought by relatively unknown insurer Anbang, or the new Manhattan skyscraper Bank of China snapped up in December. But most companies will save themselves a lot of trouble by staying put.
This view is a Breakingviews prediction for 2015. Click here to see more predictions.