Private Chinese companies should seize the post-crisis opportunity to accelerate overseas acquisitions, boost global competitiveness and aid the country's economic restructuring, officials and company executives said on Thursday.
In addition to major state companies securing natural resources abroad, China's private sector, which is much less vulnerable to foreign regulatory hurdles, should also step up acquisitions of overseas assets for technology and expertise, they said.
The chorus of support comes amid signs of growing international footprints for private Chinese companies in the aftermath of the global financial crisis, which has weakened corporate strength in Western markets, while increasing the clout of companies in the world's second-biggest economy.
"The government is very strongly in favour of cross-border mergers and acquisitions," Su Ning, former deputy governor of the People's Bank of China, told a conference on mergers and acquisitions in Shanghai.
"Overseas acquisitions should play a role in China's strategic economic restructuring," said Su, who heads China UnionPay, the nation's sole bank card payments processor.
In the latest case of a little-known Chinese company bursting onto the scene in a high-profile takeover bid, Xinmao Group said on Thursday that it had obtained backing from a Chinese lender for a $1.3 billion bid for Dutch cable maker Draka Holding NV.
Earlier this year, Zhejiang Geely Holding Group, another non-state-owned company, and parent of Hong Kong-listed Geely Automobile Holdings, bought Ford Motor Co's Swedish Volvo unit, marking China's biggest acquisition of a foreign car maker and reflecting the country's rapid rise in the global auto arena.
China's energy giants, including PetroChina Co Ltd and China Petrochemical & Chemical Corp (Sinopec), are stepping up acquisitions of overseas assets to secure strategic resources, but such efforts have sometimes run up against political resistance, as with offshore oil producer CNOOC Ltd's failed bid for U.S. oil firm Unocal in 2005.
PRIVATE TEAMING UP WITH PUBLIC FIRMS
One potential strategy for avoiding such scrutiny could be for private companies to team up with state firms, taking the lead on any acquisitions to draw less attention, Chen Zongsheng, deputy secretary general of the government of the northern city of Tianjin, told the same conference.
"The number of overseas acquisitions by China's private sector is increasing," Chen said. "Compared with state-owned enterprises, private companies are more likely to succeed in acquiring foreign assets in some politically sensitive areas."
The global financial crisis had created a golden opportunity for overseas expansion, as Chinese companies could benefit from depressed overseas asset prices and an appreciating Chinese currency, Chen added.
Other industry players emphasised the importance of using acquisitions to create globally competitive Chinese companies, one of Beijing's aims.
"Mergers and acquisitions could play a huge role in promoting technological upgrades and industry consolidation," said Fang Fenglei, chairman of private equity fund Hope Investment Management Co.
Fang noted that western giants including Exxon Mobil Corp, Pfizer Inc and JPMorgan Chase & Co had all grown through acquisitions, saying it was a path that Chinese companies should also follow.
TROUBLE WITH FUNDING
The government is encouraging banks to extend loans for acquisitions, but some industry players complain it is still too difficult to secure financing.
"The government has allowed commercial banks to make acquisition loans, but I think this is very difficult to implement," said Hope Investment's Fang.
"Bank loans are not practical in China; there are many problems. I think China should introduce new financing tools," he said, adding that companies should be allowed to issue high-yield bonds to fund acquisitions.
One banker, who declined to be identified, echoed the concerns about funding, saying recent government moves to tighten monetary policy could make it more difficult to secure funding.
"For next year, tighter liquidity could mean some companies may become distressed and that would translate into M&A opportunities because owners are usually reluctant to sell when times are good and liquidity abundant," he said.
"Having said that, the problem of bureaucratic red tape and the lack of financing instruments remains acute."
(Editing by Chris Lewis)