China focuses investment on Belt and Road countries

Chinese companies' acquisition activities along the Belt and Road countries has increased this year in spite of a dramatic fall in overall Chinese outbound investment, according to the latest Thomson Reuters data.

The data showed that Chinese firms have invested in mergers and acquisitions to the value of $33 billion in the 68 countries along the Belt and Road map as of August 14, surpassing the $31 billion figure for the whole of 2016.

The increase in investments in the Belt and Road countries compares to a 42 per cent drop in all Chinese international mergers and acquisitions over the same period, the Thomson Reuters data showed.

The UK has also proven a major target for Chinese buyers. Thomson Reuters tracked 29 Chinese takeovers of UK companies worth a total of 13 billion pounds ($16.7 billion). At the same time last year, 25 deals worth 3 billion pounds had been agreed.

Mike Wang, partner at the Chinese law firm King & Wood Mallesons said the data matched their business experience. "Our clients are finding it much easier to foster constructive relationships with target companies on the Belt and Road map, with support from both the Chinese government and the target company’s government," he said.

First proposed by President Xi Jinping in 2013, the China-led Belt and Road initiative aims to increase trade and investment between Asia, Europe and Africa.

President Xi also said at Belt and Road Forum in Beijing in May that China will contribute an additional 100 billion yuan ($14.49 billion) to the Silk Road Fund for investments in Belt and Road countries.

Xue Haibin, managing partner of Zhong Lun Law Firm's London subsidiary, said the growth in UK-focused deals is supported by the UK government's attempt to foster closer ties with China and Asia amidst Brexit uncertainties.

"The UK is proactively positioning itself as an important part of the Belt and Road map. Because Belt and Road strategy development needs both real economy and financial collaboration, the UK’s strength in financial services gives it a unique advantage," Xue said.

The number of Chinese deals targeting Belt and Road countries totaled 109 this year, compared to 175 in the whole of last year and 134 in 2015, the Thomson Reuters data showed.

The largest deal in a Belt and Road country so far this year was a Chinese consortium's $11.6 billion buyout of the Singapore-based Global Logistics Properties, announced in July. The consortium comprises Hopu Investment Management, Hillhouse Capital Group, Vanke Group and Bank of China Group Investment.

Another top deal is China National Petroleum Corp's $1.8 billion purchase of an 8 per cent stake in Abu Dhabi National Oil Co, announced in February.

Andrew Monk, CEO of VSA Capital Plc, a London-based investment bank with a subsidiary in Shanghai, said from his observations most of China’s outbound deals along the Belt and Road countries fit into China's strategic development.

"The deals done so far are in sectors that add value to China’s strategic growth, especially in areas such as technology, renewable energy and green industries," he said.