China's M&A activities vibrant amid economic uncertainty

Updated: 2011-08-17 16:29


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BEIJING - Despite the recent economic uncertainty and volatility in the United States and Europe, Chinese companies remain buoyant in merger and acquisition (M&A) activities so far this year.

Earlier this month, China Resources Snow Breweries (CR Snow), one of the country's biggest beer brewer, took over Hangzhou Xihu Breweries Asahi Co Ltd to expand its reach in the eastern Zhejiang province.

Upon completion, Hangzhou Xihu Breweries, the oldest brewery in Zhejiang, will become a fully-owned subsidiary of CR Snow. The latter will then posses two more production bases in addition to the existing six in the province.

Analysts said M&A activities like the one in the brewing industry are expected to take place in many other industries and more frequently as the country is restructuring its economy and tightening liquidity to rein in stubbornly high inflation.

In the first seven months, a total of 1,865 M&A deals valued at 445.74 billion yuan ($69.74 billion) were announced in the country's M&A market. The amount already made up 64.4 percent of the total of last year, according to a report by ChinaVenture Group, a research and consulting firm focused on venture capital investment.

The report said the completed deals last year totaled 692.15 billion yuan, almost quintupling the amount in 2006 when China's M &A market started to boom.

The M&A moves are more prominent in sectors that are suffering from the tightened monetary policies and the gloomy global economy. For example, manufacturing and real estate sectors grabbed top slots in terms of the M&A scale.

In July, the real estate industry disclosed 17 deals worth 11.88 billion yuan, dwarfed all others by both the number and the amount of M&A moves.

As the Chinese government has tightened control on the overheating property market, large real estate developers buffered against the impact by expanding its businesses into smaller cities while small and medium-sized enterprises (SMEs) had to sell their projects due to insufficient capital.

In the manufacturing sector, shortages of capital and labor, soaring costs, the rising yuan and sluggish overseas demand have forced many SMEs into a fierce battle for survival.

Among the 60 small businesses and 10 industry associations interviewed by Xinhua in the costal provinces of Zhejiang, Fujian and Guangdong where manufacturing SMEs cluster, as many as eight out of 10 companies said they were suffering from operating difficulties more than ever before.

Leaner profits have made business owners reluctant to take orders, while a labor shortage, tightened electricity and money supply are impeding production. Many small businesses said they are faced with "the toughest time in their history."

The wave of M&As might provide solutions for small businesses to thrive amid the uncertain economic times.

"The government can provide financing assistance or cut taxes to encourage small businesses to merge. In this way, those robust small businesses can thrive by healthy expansion," said Ba Shusong, a senior researcher for the development research center of the State Council.

Chinese outbound M&A activity also increased during the first half of this year. PriceWaterhouseCoopers said Monday the country's outbound M&A activity rose 14 percent in the first half from the year-earlier period, involving 9.6 billion U.S. dollars.

That compares to foreign direct investment (FDI) into China which jumped 18.6 percent to $69.19 billion in the first seven months of the year, according to figures released by the Ministry of Commerce Tuesday morning.

In July alone, a total of $8.297 billion of FDI was brought into China, up 19.83 percent year on year, said the ministry in a statement on its website.