China M&A's Red Center

Companies from the nation spent a record on offshore transactions but state-owned firms were most active.

There's been much talk this year about China's new normal. Economic growth is slowing as President Xi Jinping steers the nation toward a greater reliance on consumption and services and away from smokestack industries. So technology, travel and consumer companies look like good investments, energy and coal ones not so much.

But even a cursory glance at the bulk of overseas acquisitions by Chinese corporates shows that's still largely rhetoric. By and large, the big buyers remain state-owned entities, or at least state-linked ones, and not the entrepreneur-driven Alibabas, Tencents and Fosuns meant to encapsulate China's shift away from exports and industrials.

Offshore Appeal

Fosun International's outbound deal volumes

Source: Bloomberg

Fosun, whose chairman disappeared and mysteriously reappeared earlier this month, showed how fragile private companies' offshore ambitions can be when it dropped its bid for European lender BHF Kleinwort Benson on Monday. The decision by one of China's most-aggressive overseas acquirers to withdraw its almost $550 million offer stands in stark contrast to its dogged, two-year battle for Club Med, which finally concluded with a buyout of the French resort operator early this year. Shanghai-based Fosun has forked out some $3.5 billion on deals over the past 12 months, including its $2.1 billion purchase of U.S. insurer Ironshore, to top the list of overseas acquirers among private firms in 2015.

Indeed, as cheap financing drove global M&A to new records, total overseas purchases by Chinese companies also surpassed previous peaks:

Going Abroad

Chinese companies had record outbound M&A this year

Source: Bloomberg

But even though Beijing's hunt for energy security amid oil's travails has abated, SOE-led deals continue to dominate. Strip out take-private transactions of U.S. publicly traded Chinese tech firms, and state buyers lead this year's list.

No. 1 is ChemChina's $7.1 billion acquisition in March of Italian tire maker Pirelli, No. 2 is the $3.8 billion bid in September by Tsinghua Unigroup, the private equity arm of state-owned Tsinghua University, for 15 percent of the world's biggest hard-drive maker, Western Digital, and No. 3 is China Three Gorges' $3.7 billion purchase last month of some hydro-power plants in Brazil.

One could argue 2015's outbound push is really just a state-driven quest for better technology, be it cars or computers.

Beijing-based Dalian Wanda, which bought cinema chain AMC Entertainment in a $2.6 billion deal three years ago, snapped up Swiss sports-marketing firm Infront Sports & Media for $1.05 billion this year, but its fewer than $8 billion so far in acquisitions makes it a much smaller player overseas than its state-owned counterparts. 

What's more (putting aside Fosun and Anbang, a little-known insurer that bought New York's iconic Waldorf Astoria hotel a few years back), while China's other main consumer-focused companies are spending, they're not doing it overseas. Baidu, Alibaba and Tencent outlayed $31 billion on M&A in 2015, Bloomberg data show, but purchases of stakes in other Chinese companies were the order of the day. Exclude home-grown targets and the trio's deal volumes shrink to $1.7 billion, sharply down on 2014's $2.9 billion.

There's no doubt the pendulum will swing definitively at some point as domestic consumption begins to account for an ever-greater portion of China's GDP. But for now the M&A levers are firmly in old normal hands.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Nisha Gopalan in Hong Kong at

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