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Mergers and acquisitions account for a third of outbound investment

By Chen Yang (Global Times)

08:35, July 23, 2012

Chinese companies stepped up direct outbound investment in the first half of 2012, with mergers and acquisitions (M&A) activities accounting for one-third of the total investment, Commerce Minister Chen Deming said over the weekend.

The country's non-financial direct outbound investment reached $35.4 billion during the first half, a 48.2 percent year-on-year growth, as Chinese companies took advantage of the global economic weakness to expand overseas, Chen said at a forum held Saturday in Shanghai.

The high growth rate was boosted by several big acquisitions, such as Sinopec Group's $2.44 billion purchase of shale gas assets owned by US company Chesapeake Energy, and Sany Heavy Industry's 324 million euros ($394 million) deal for German machinery maker Putzmeister Holding, according to Chen.

"Acquiring cash-trapped foreign companies is an efficient approach for domestic companies to expand overseas and grab local market shares," Feng Pengcheng, a professor at University of International Business and Economics, told the Global Times.

Some Chinese companies just consider cost when initiating M&As, but they lack a long-term business plan and the ability to integrate overseas assets and employees, Xue Qiuzhi, a professor of management at Fudan University, said at the forum.

Though Chinese companies could get access to the overseas market after an acquisition, they still face operational difficulties in the short term as the market demand is sluggish, said Wan Ge, an analyst at ChinaVenture Investment Consulting.

About 40 percent of M&As initiated by Chinese firms in overseas markets made gains, which is higher than the global average of 25 percent, said a research conducted by the Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

The higher rate of success was mainly caused by two factors - greater caution by Chinese companies and lower costs of acquisitions after the global financial crisis, the research showed.

But Chen said barriers to China's direct outbound investment still exist, because some countries still have concerns about Chinese investment in energy and mining sectors, as well as big projects especially from State-owned enterprises.

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