China on course to avoid Empire State-sized errors: CIC

The president of China's sovereign wealth fund sees more sustainable outbound M&A activity after a sharp decline in 'irrational' purchases in areas like property.

Chinese enterprises have become more rational and prudent when investing overseas after the government clamped down on offshore purchases of little strategic value in late 2016, the head of China's sovereign investment fund believes. 

Despite a sharp decline last year in the value of Chinese outbound mergers and acquisitions, the investment landscape is now healthier as China Inc focuses more on offshore companies offering synergies with their own businesses, said Tu Guangshao, president and vice chairman of China Investment Corporation, speaking at the country's showpiece annual Boao Forum on Monday.

China's overseas investment boom in the middle of the decade saw a host of extravagant deals for assets from hotels to soccer clubs that later became a cause for concern in Beijing. Regulators have, since late 2016, been pulling back on "irrational" deals, with some of the worst offenders forced to sell off assets or falling into state control.

But Tu, a former Shanghai vice mayor, said the shift towards protectionism had contributed to the decline in Chinese offshore investments, with more deals blocked by foreign governments and fewer foreign companies willing to sell to a Chinese buyer.

According to China's Ministry of Commerce, the country's total outbound M&A deal value last year amounted to $120 billion, representing a 29.4% decline from the record year of 2016.

However, in spite of that pullback, Tu said China remains a major global investor and predicted that Chinese firms will continue to invest in order to become more internationalised. 

"You cannot assume China is not investing globally just because of the decline [in outbound M&A] last year, " Tu said. "Our investment still [topped] $100 billion last year. That shows China is still eager to invest overseas."

True to his words, CIC remained committed to overseas purchases despite the global economic uncertainties. Notably, the sovereign wealth fund splashed out €12.25 billion ($13.8 billion) for warehouse operator Logicor Europe in China's biggest outbound transaction last year

On the back of that acquisition, Tu said CIC is fine-tuning its strategy on overseas investments. While it continues to focus on large and stable investment opportunities in the infrastructure sector, more resources will be deployed to other industries set to be fundamentally transformed by technological advances. 

EMPIRE OF THE SUN

Private enterprises should not repeat the mistakes made by Japan decades earlier by making overseas investments purely for "national pride", said Li Yang, former vice president of China Academy of Social Sciences, a top government think-tank.

"When Japanese billionaire Hideki Yokoi bought the Empire State Building in the US, local media hailed the transaction as "putting a knife at the heart of America"', Li said. "This is a prime example of irrational investment that Chinese companies should not make."

Li was referring to Japan's dramatic acquisition of the landmark building in 1991 on the back of the country's rapidly-growing economy and inflated real estate and stock prices domestically. Shortly after the purchase, Japan's investment bubble burst and the Japanese economy suffered a long-term decline oft-dubbed its lost decades.

Li appeared to be pointing to Anbang Insurance's purchase of Waldorf Astoria, the iconic five-star hotel in downtown New York.

The privately-held insurer's $1.95 billion purchase in October 2014 marked the beginning of an irrational global buying spree that involved South Korea's Tong Yang Life Insurance, Dutch insurer Vivat, and Belgian lender Bank Nagelmackers, sparking speculation that it was moving money offshore through these asset purchases.

The troubled insurer was taken over by the Chinese government in February, while its chairman Wu Xiaohui was detained.

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