As part of our Chinese Outbound Investment publication, we make a number of predictions on the future of China's offshore investment. Aside from further deregulation which will substantially increase the ease of doing business, we predict the following trends.
Market and Deal Trends
- China will become the world’s biggest cross-border investor in the next five years
- Further deregulation and simplification of the existing regime will facilitate increasing cross-border investments
- Hungry for quality assets, Chinese bidders will:
- continue to compete among themselves and grow more competitive overall
- grow less averse to going hostile
- become more involved in public deals
- become more comfortable with taking minority shareholding positions in foreign listed companies
- There will be more partnerships with local players (especially in sensitive sectors), and with experienced partners like PE, SWFs and pension funds
- Vendors’ obsession with clean exits will result in more Warranty & Indemnity policies accepted by Chinese buyers
- Deals requiring CFIUS clearing will see more reverse break fee requirements
- Conversely, with Chinese regulatory requirements becoming more relaxed, failure to obtain NDRC approval may no longer trigger a reverse break fee
- HK and PRC listed companies will lobby their exchanges for board freedom to approve large acquisitions without shareholder approval, especially as SOE reform removes large majority shareholders which made shareholder approval a formality.
Energy & Resources
- Taking advantage of low equity prices, Chinese SOEs and POEs will continue to make significant acquisitions in the mining sector
- Particular jurisdictions of interest will include lower risk countries such as Australia and Canada, and key African and Latin American destinations, including South Africa, Mozambique and Brazil
- In oil & gas, the next 12 months is likely to see consolidation of existing assets, rather than significant acquisitions
- Renewables will continue to be a focus, with wind farms in particular likely to remain in high demand
Food and Agriculture
- Investment in food and agribusiness will continue to steadily grow
- Smaller companies with natural, healthy and providence based brands and products will be of increased interest
- China’s e-commerce providers will increase investments in supply chain providers and logistics to facilitate ecommerce trade to China in food
- There will be winners and losers with investments in international infant formula providers focussing on China as regulatory changes develop.
- Manhattan will continue to outpace London as the preferred destination for Chinese buyers
- China REITs will attract non-PRC investors
- At least one major Chinese real estate company will become insolvent next year
- Jin Jiang will become the third largest hotel operator in the world.
China’s 13th Five Year Plan
The Plan will see that:
- Health will become the most hotly contested sector in the next 3 years
- The services sector, including hospitality, leisure (not just hotels) and education will remain very active
- Quality assets and know-how in high-tech, high-end manufacturing and environmental protection will be in high demand.
- Outbound M&A by SOEs in transport will continue to rise initially, but may plateau due to integration delays and domestic restructuring
- Capital will shift to outbound investment linked to development projects with a broader policy benefit
- AIIB will become a major funder of infrastructure projects in the Asian region in the next decade
- 20% of all China outbound loans will be provided for infrastructure projects
- SOEs and state-owned banks will lead the way on infrastructure investment, with the private sector providing products and services along the way
- Offtake/tolling contracts for major infrastructure projects will start to be priced in RMB, reflecting the currency of both users and financing
- State-owned developers and contractors will rival the major Japanese and European house in Asian development work.
Media, Technology and Entertainment
- Focus on sports media (football and broadcasting rights) to intensify
- The so called “consumer tech bubble” is, in our opinion, only just starting to inflate – offering massive opportunities
- Chinese video games and film industries will outstrip the US within 5 years
- A number of UK and EU fashion retailers will be “measured up” by Chinese investors.
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