Chinese firms once generated headlines around the world as they went on an unprecedented global shopping spree, buying up everything from landmark properties in New York to Hollywood studios to sports teams in Europe, but the wave has been slowing in recent months, plagued by tremendous obstacles and risks.
Chinese companies faced increasingly intensified scrutiny from foreign governments in mergers and acquisition (M&A) deals overseas, and even if the M&A deals were approved, they still face a barrage of issues and risks conducting business effectively in the overseas markets, experts said on Wednesday.
Increased scrutiny over M&A deals involving Chinese investors might have contributed to the fall in Chinese overseas investment, experts noted.
In an article published on June 22, Bian Yongzu, an expert at the Chongyang Institute of Financial Studies at Renmin University of China, citing an earlier report, pointed out that only 20 percent of proposed overseas M&A deals involving Chinese players went through successfully.
In Chinese companies' overseas M&A deals, political issues usually get ignored but they could be deal breakers for the companies, Bian wrote in the article.
"It has never been a smooth path for Chinese companies overseas," said Du Juan, marketing manager of the Beijing Representative Office of NRW.INVEST, the development agency of North Rhine-Westphalia, Germany. Du noted that though the investment environment in Germany is "generally loose," Chinese firms need to be cautious about business deals in areas such as military technology or that touch on national interests.
The outlook remains dim for Chinese firms looking to go overseas. The New York Times reported in June that the officials were considering ways to further strengthen the role of the Committee on Foreign Investment in the U.S., which can block foreign deals for U.S. firms on national security grounds.
Bian noted that different laws and regulations in foreign markets could pose risks for Chinese companies, if due diligence was not conducted. Risk is also high in financing due to fluctuations in exchange rates.
To ensure success for Chinese firms' overseas endeavors, both the government and the companies need to take necessary measures, the expert said.