China Seeking Overseas M&A
NEW YORK (TheStreet) -- China wants to buy.
Officials from the world's third-largest economy on Wednesday gave further indication that the Chinese government is spurring its companies to make investments overseas. China sees this as a way to break the country's dependence on construction and exports. And, they say, it just so happens that the time is ripe, with asset values worldwide down severely amid the recession.
In London on Wednesday, the chairman of
Chinalco
, the government-run aluminum giant, said Chinese companies will pursue a "new wave" of mergers and acquisitions in other countries.
Chairman Xiong Weiping said China as a whole planned to increase its M&A activity in the oil and mining sectors by at least half in 2009,
Bloomberg
reported. Xiong, who made his remarks at a conference in London, said that mining acquisitions in particular would likely increase as the financial crisis ends.
For political and other reasons, companies directly controlled by the Chinese government have had a tough time making deals outside the country's borders. Chinalco's own effort to buy a stake in the Aussie mining giant
Rio Tinto
(RTP)
fell apart earlier this year.
Partly under pressure from domestic politicians, Rio chose to spike an earlier agreement with Chinalco to increase its stake in the ore miner, which was seeking financing as it struggled with a huge debt load.
Instead, Rio decided to issue equity and form a joint venture with its rival,
BHP Billiton
(BHP) - Get Report
. (Chinalco does, however, still own a stake in Rio. In 2008, it teamed with
Alcoa
(AA) - Get Report
to buy a 12% piece for $14 billion.)
The collapsed deal served to heighten -- and highlight -- the political tensions and pitfalls that face China in its overseas M&A efforts. Not long after the Rio deal fell apart, Chinese officials detained several Rio executives traveling in the country in July. China subsequently alleged that Rio execs took part in an enormous commercial-espionage plot that, over the course of years, cost China $100 billion.
Perhaps not coincidental to Xiong's comments, China's Commerce of Ministry issued a report on Wednesday showing that state-controlled companies made $37.5 billion worth of overseas investments in 2008, which, on the face of it, seems a tiny number. (The sum wouldn't even cover the bailout of Citibank, after all.)
Still, with $2.1 trillion in cash reserves, the most of any nation, China certainly has the dry powder to do deals. And its companies have met with some success recently. The government-owned coal producer
Yanzhou
struck a deal to acquire the Australian outfit,
Felix Resources
, for about $3 billion in August. And China Petrochemical agreed to spend about $7.8 billion on a Swiss energy concern,
Addax Petroleum
.
"Chinese companies face huge challenges in 'going out' as they lack experience in the field,"
Bloomberg
reported Xiong as saying at the London conference. "We are growing from lessons."
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.
