In The First Three Quarters, China'S Outbound M & A Transactions Fell To A Low Level Of Nearly Ten Years.

According to data released by Refinitiv in October 15th, China's outbound M & A transactions in the first three quarters dropped to a low level of nearly ten years, with a total value of $31 billion 100 million, down 49.6% from the same period last year. A record low since the same period in 2010.

Another report released on the same day shows a similar situation. In October 15th, Ernst & Young released the ninth phase of China's "going out" report: how to cope with the new challenge of "sea going" under the new pattern of international trade? "In the first half of 2019, the scale of overseas mergers and acquisitions of Chinese enterprises reached the lowest level in seven years, the total amount was 20 billion 40 million US dollars, down 60% compared to the same period last year. The number of mergers and acquisitions announced was 257, down nearly 40% from the same period last year.

Tighter regulation, many transactions abort

Specifically, according to the Ernst & Young report, in the first half of this year, the focus of overseas mergers and acquisitions of Chinese enterprises shifted from the US and Europe to the Asia Pacific region. Asian mergers and acquisitions amount to the six largest continent, accounting for nearly 40% of the total volume, rising 22% over the same period last year, and Oceania's growth of 38% over the same period last year. Australia is the first destination country for overseas mergers and acquisitions of Chinese enterprises. Meanwhile, the European and American regions with frequent tightening regulation have fallen seriously. In the first half of the year, the European Union's M & a decreased by 87%, the largest decline in the history, and the largest decrease in the amount of history, while North America fell 72%.

Look at the industry distribution, high-tech industries, high value-added new industries, high-end services and consumer goods industry has become the focus of overseas mergers and acquisitions of Chinese enterprises.

Over the past few years, a number of overseas markets have tightened their scrutiny of foreign investment. According to Ernst & young, only 2017 countries and 28 overseas countries (such as the United States, Germany, the United Kingdom, Australia, etc.) issued 49 regulatory measures involving foreign investment restrictions in 2018 and abroad. Nearly 40% of the new measures are based on foreign investment in infrastructure, core technology, national defense, or sensitive assets of enterprises, which affect national security. The report shows that the trend of global protectionism and counter globalization is spreading.

Many transactions were aborted. "In 2018, the amount of overseas mergers and acquisitions that Chinese enterprises had failed or withdrawn after the announcement of the transaction amounted to US $37 billion, amounting to 38, a record high, compared with 18 in 2014. Among them, the United States is the largest number of failed or withdrawn countries after the announcement of overseas mergers and acquisitions by Chinese enterprises, up to 21, mainly in the TMT and financial services industries. Ernst & amp; young trading consultancy Chen Zhong, director of central China, told the twenty-first Century economic report.

In 2018, the US government introduced a bill to sharply tighten the foreign investment review system. In August, President Trump signed the "foreign investment risk review Modernization Act" (FIRRMA). By October, it further put forward the pilot measures to control the investment in "key technologies", and established the key technology pilot scheme of the CFIUS. By the end of 9 this year, the US Treasury issued the proposed implementation regulations for FIRRMA. The public consultation period will be closed on October 17th. According to the relevant analysis, the final rules are expected to take effect in February 2020.

"Constantly tightening the regulatory environment for overseas investment makes Chinese enterprises face more challenges in overseas mergers and acquisitions, but at the same time, it also promotes Chinese enterprises to remain prudent and improve internal investment decision-making and risk identification and control capabilities." Chen Xuan said.

In addition to the US, there has been a significant decline in the scale of mergers and acquisitions in Europe over the past few years. The main reason behind this is the tightening of regulation in Europe and the European Union. In March 2019, the European Union Council formally approved the EU Framework Agreement on foreign capital safety review. According to Roland Begg's latest report, 6 countries in the European Union have updated or promulgated a new system of foreign investment review since 2018. Among them, the 4 foreign countries currently have the most clear position in the foreign investment review mechanism.

How Chinese enterprises invest overseas under the new global trade pattern

Besides the challenge of tightening regulatory environment overseas, Chinese companies are also facing the impact of trade friction. In 2018, Global trade volume increased by 3%, which was directly affected by Sino US trade friction. Global trade growth was down 1.6% compared with 2017. Trade and investment are highly related, both promoting and guiding relations.

"The current Sino US trade friction has had a great impact on Chinese enterprises, including increased tariffs on imported products, increased risk of corporate exchange, re examination of supply chain arrangements, increasingly uncertain external investment environment and increasingly stringent requirements for tariff compliance business. Under the new trade pattern, enterprises will make some appropriate strategic adjustments. We have received many Chinese customers' research needs for the global supply chain, some of them are already in operation, and some are considering them. Lu Chen, director of global taxation at Ernst & amp; China overseas investment division, told the economic report twenty-first Century.

How to invest overseas under the new pattern of international trade? Based on China's international trade structure, the Ernst report provides some analysis and ideas.

From the point of view of imports, the top five import categories in 2018 included electrical / electronic products and machinery and equipment, mineral products, chemical industrial products, transport equipment and instrumentation, accounting for 75% of the total, including the trade deficit of crude oil and integrated circuits.

Lu Chen suggested that from the perspective of supply chain protection, Chinese enterprises should actively seek overseas investment in high-quality mineral products, crude oil and integrated circuits, and increase investment in research and development in related fields.

"First, we should pay close attention to the related investment opportunities of China, Taiwan, Korea and Japan in the fields of electrical and electronic products and machinery, chemical industry and instrumentation, and strengthen industrial cooperation. Second, we should pay close attention to the investment opportunities of high-quality mineral resources in Australia, Russia and Brazil, and further ensure the supply of strategic resources. Third, we should pay close attention to the investment opportunities of the dominant automobile and transportation industries in the United States, Germany and Japan, and strive to have a deeper and wider layout in the industrial chain." Lun Chen, Global Tax Director of Ernst's China overseas investment business, suggests.

From the point of view of exports, the top five export categories in 2018 were electrical / electronic products and machinery and equipment, textile raw materials and textile products, base metals and their products, furniture / toys, miscellaneous products and chemical industrial products, accounting for 74.4% of the total. The five largest export destinations are the United States.

"Enterprises need to pay more attention to geopolitical risks. On the one hand, Chinese enterprises which are more dependent on the US market demand can timely review the layout of supply chain in order to enjoy the preferential tax rates under trade agreements and preferential tax arrangements, ensure the international competitiveness of products, and on the other hand enterprises should actively explore other countries and regions to reduce their dependence on a single market." Lv Chen said.