China’s acquisitions and investments in foreign firms amid COVID-19 raise eyebrows, says GlobalData

Even as the COVID-19 pandemic continues to affect the global economies and businesses, Chinese companies have upped the ante to acquire or invest in distressed foreign assets in strategic locations. Against this backdrop, governments across several nations are now concerned about this move by China, according to GlobalData, a leading data and analytics company.

Several media reports also suggest that there has been a growth in Chinese companies seeking proposals for targets from banks.

During January to April 2020, 57 Chinese outbound M&A deals worth US$9.9bn and 145 Chinese outbound investments worth US$4.5bn were announced. The key M&A target destinations for Chinese firms included Hong Kong, the US, the UK, Germany, France, Canada and India. The key investment destinations during the period included the US, India, the UK, Hong Kong, Japan, France, Germany, South Korea and Australia.

Aurojyoti Bose, Lead Analyst at GlobalData, comments: “Chinese companies’ acquisition of distressed foreign assets at much cheaper price during COVID-19 pandemic remains an area of concern with governments across several countries tightening their foreign direct investment (FDI) policies.”

The European Union was among the forerunners in tightening scrutiny of foreign investments. Germany, Spain, France and Italy have already brought in rules to protect domestic firms from hostile takeovers and investments. Similarly, Australia also tightened its rules on foreign investments.

Bose adds: “With majority of the big companies in China being state-owned, governments worldwide are seeing these investments as a potential threat and politically motivated move.”

For instance, alarmed by state-owned People’s Bank of China’s raising stake in India-based HDFC to over 1% (17.5 million shares) during Q1 2020, India amended its FDI policy in April 2020, which mandates government approval for all investments from nations with which it shares boundary.

However, such move may also have detrimental impact on start-up ecosystem for developing economies such as India. Chinese companies have traditionally been the lead investors in some of the key start-ups in India, which also enabled these start-ups to scale up. Some examples of the successful China-backed start-ups Byju, Ola, Paytm, Zomato, Swiggy and Bigbasket, among others.

Bose concludes: “With the US and European economies reeling under the impact of COVID-19 and investments from these regions likely to remain sluggish (at least for the short-term), this move by developing economies such as India may emerge as a hindrance for start-ups seeking investments for business expansion. It would be interesting to see if China along with these countries come up with a balancing act wherein Chinese investments are not seen as a threat by these countries.”

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