Monday , April 22 2019
Home / IFO Hans-Werner Sinn & Clemens Fuest / ifo Institute: Chinese companies buy larger, cheaper, and less profitable companies abroad

ifo Institute: Chinese companies buy larger, cheaper, and less profitable companies abroad

Summary:
Cross-border company acquisitions by Chinese companies differ from those made by companies in other countries. Chinese investors buy larger companies with higher debt levels and lower profitability. The prices paid by Chinese investors in these transactions are lower than what other investors pay. This is the result of an analysis by a research group led by ifo President Clemens Fuest. He and fellow authors Felix Hugger, Samina Sultan, and Jing Xing examined more than 70,000 cross-border acquisitions of companies in 92 countries between 2002 and 2018. In 1,900 takeovers, the buyers were from China; in 171 cases, Chinese investors took over German companies. On average, companies acquired by Chinese investors are seven times

Topics:
Clemens Fuest considers the following as important:

This could be interesting, too:

Clemens Fuest writes ifo express : les automobiles électriques ne sont pas la panacée pour protéger le climat

Clemens Fuest writes Kohlemotoren, Windmotoren und Dieselmotoren: Was zeigt die CO2-Bilanz?

Clemens Fuest writes ifo Schnelldienst: Electric Vehicles are not a Panacea for Climate Change

Clemens Fuest writes ifo Dresden Newsletter 16 April 2019

Cross-border company acquisitions by Chinese companies differ from those made by companies in other countries. Chinese investors buy larger companies with higher debt levels and lower profitability. The prices paid by Chinese investors in these transactions are lower than what other investors pay.

This is the result of an analysis by a research group led by ifo President Clemens Fuest. He and fellow authors Felix Hugger, Samina Sultan, and Jing Xing examined more than 70,000 cross-border acquisitions of companies in 92 countries between 2002 and 2018. In 1,900 takeovers, the buyers were from China; in 171 cases, Chinese investors took over German companies.

On average, companies acquired by Chinese investors are seven times larger in terms of total assets than companies acquired by investors from other countries. The debt ratio for the former is 6.5 percentage points higher, average profitability at the time of acquisition is close to zero, while other investors focus on companies with positive earnings.

Chinese state-owned enterprises prefer takeover targets in the field of raw material extraction and in the agricultural sector, while Chinese private companies are more likely to buy companies in the electronics, mechanical engineering, and automotive industries. However, Chinese state-owned enterprises are also active in the latter.

The fact that Chinese investors buy more cheaply runs counter to the widely held belief that Chinese companies use state subsidies to systematically outbid other investors and drive them out of the market. “Chinese investors seem to place more emphasis on size rather than profitability, thus avoiding competition from other bidders,” Fuest says. The preference for companies with greater debt and lower profitability could also be explained by a longer-term investment horizon or better financing possibilities through Chinese state-owned banks. “In addition, the study shows that Chinese state-owned enterprises are implementing the government’s strategic economic policies, particularly the ‘New Silk Road’ and ‘Made in China 2025’,” Fuest says.

Publication

  1. Fuest, Clemens, Felix Hugger, Samina Sultan and Jing Xing, "Chinese acquisitions abroad: are they different?", CESifo Working Paper No. 7585, April 2019 | Details | PDF Download

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

Leave a Reply

Your email address will not be published. Required fields are marked *