Acquisitions crucial to China's economy

Cash-rich nation is spreading its wings, but we should expect to see greater diversity in investments

China's economy needs to keep growing in size and diversity for the good of the nation, its people, and indeed the world. As the largest trading nation, China is crucial to the global economy, but growth cannot entirely be organic.

Two particular areas of importance will be the formation of new companies and startups, and the government policy on this is very clear. Then, there are mergers and acquisitions.

It makes enormous sense for a cash-rich economy such as China to spread its wings and grow internationally, and explore sectors as yet unexploited though M&As involving overseas companies and assets, notably technology, and not just real estate.

This is a time when companies in the West are interested in working with Chinese corporations and investors to gain new financing to enable renewed or continued global growth.

The acquisition of Syngenta, a Swiss agrochemical and seed producer, by China National Chemical Corp is a good example of a union that makes sense for both parties. It is expected to create a stronger global force to compete with Monsanto and others.

On specifics, some of us are working with Chinese investors to establish new funds to invest in British bioscience companies with global potential. Discussions are advanced. Success with these projects would bring more Chinese cash to the United Kingdom and take new technology to China.

This activity would lead mid to long term to more M&As led by Chinese companies seeking deeper levels of ownership in international companies. Technology sectors, including financial technology, could become happy hunting grounds for Chinese investors.

The fluctuating yuan should not be a significant factor. Many transactions will be in US dollars or maybe sterling. Changes in the yuan will have more impact internally.

China's stock exchanges are affected by currency valuation, of course, and management of public markets without undue intervention will hopefully be the order of the day. Investors in China's public markets will play a part in the stability or otherwise of company valuations, and therefore relative currency valuations.

Now that the yuan has become the second-most-used currency in trade finance internationally, its exposure to international financial ups and downs and currency movements will lead to fluctuations from time to time. This is the real world. But I cannot see why fluctuations in the yuan in particular - unless very significant - would affect the overall volume and appetite for M&As among Chinese corporations.

I see great potential for Chinese investors in sectors beyond real estate. Infrastructure projects in the West will attract significantly increased amounts of Chinese money. This may lead to M&As in the sector.

Intermediaries in the City of London are reporting increased interest in the telecommunications, media and marketing sectors, and financial technology. Some of us active in UK-China trade are working to attract more Chinese investment in healthcare, life sciences and clean technology.

Much has been written about the outreach work of Dalian Wanda Group, which remains largely focused on real estate. Wanda is also working in energy and culture sectors. Its recent acquisition of London Oxford Capital is an interesting event.

In the West, we seek very much to encourage Chinese investors to diversity their activity. There is a great deal to recommend the science, technology and engineering sectors, including life sciences and agriculture.

Finding appropriate partners and advisers is always a challenge. The movement from the lowest risk investment options toward sectors less understood, and which require specific engineering and technical expertise, cause Chinese companies concern. However, there are increasing numbers of prospective partner companies with executives who have knowledge and understanding of China, and know how to work with Chinese partners and investors in a way that reduces risks and makes doing deals clearer and easier.

As for Wanda, I look forward to reading more about the company and its executives. Doubtless they will seek to extend their engagement and ownership in the areas they know well and where they have seen success. Given the opportunities emerging in the UK, Europe, the United States and the West in general, a more expansive strategy and diversity may be something we can expect to see.

The author is a professor with the Centre for Entrepreneurial Learning at Cambridge University's Judge Business School. The views do not necessarily reflect those of China Daily.