Investment helps promote global recovery

As voices of protectionism rise, Chinese companies maintain a steady hand with their mergers and acquisitions overseas

The voices of nativism, protectionism and populism have become louder and stronger, making the global need for inclusive development more obvious as the pace on the road to recovery in recent years has been slow. Global trade and investment was weaker in 2016 than in the previous year.

Acceleration of economic growth is the first step in promoting inclusive development. Then comes sharing the achievement. The best way to accelerate economic growth is to encourage global investment. Investment has become a key engine of recovery.

Data from the United Nations Conference on Trade and Development says that global trade increased 2.7 percent year-on-year in 2015, with foreign direct investment increasing 38 percent to $1.7 trillion, meaning that investment has become a major growth force.

However, global investment remained slow in 2016 - far less than the 2007 level of $2.28 trillion. Foreign direct investment in 2016 is expected to come in at $1.5 trillion or $1.6 trillion, or 10 to 15 percent below the 2015 level. In other words, the global economic recovery remains fragile at a low level of investment.

All of the above means we need more investment.

Two years ago, some economists in the West complained that China's economic slowdown dragged down the growth of the global economy and triggered a drop in bulk commodity prices. However, it ignored the demand created by the rapid growth of China's outbound foreign investment. In 2015, China's outbound FDI reached $145.7 billion, the second-largest total in the world, and outbound M&A accounted for nearly 40 percent of that. In 2016, outbound foreign direct investment will reach more than $170 billion, according to official data, and the value of Chinese corporate outbound M&A will top the world, according to Morning Whistle Group.

Nowadays, complaints about Chinese economic growth have relaxed, even though it has slowed further. But European investment protectionalism against FDI by Chinese companies - as seen in the voices of critics, legislation and other measures - has been increasing gradually. Some M&A deals were stopped because of resistance from the European countries' governments or public opinion.

Such criticisms and complaints are baseless, especially in the M&A field, because those deals will give both China and Western countries a better future.

In fact, as some critics said, Chinese investors came for technology. Data from Morning Whistle show that 44 percent of M&A deals proposed by Chinese enterprises focused on gaining advanced technologies, 30 percent on gaining market channels and 10 percent on brand recognition.

Chinese investors paid a premium for such M&As. In addition to making attractive offers, the Chinese investors also brought strategic resources - such as market opportunities in China - to their Western partners. The deals will increase jobs in both sides and bring win-win results.

Some Western countries insisted that those deals, proposed at such high prices, were supported by subsidies from the Chinese government - low-interest loans, for example.

They didn't seem to know that about 70 percent of Chinese M&A deals were proposed by private companies, that more than 70 percent of Chinese M&A deals were conducted by Chinese-listed companies or that the high purchase prices were actually supported by Chinese private companies' shareholders in a stock market whose average price-to-earnings ratio is more than double that of European companies. In other words, these deals deserved such values, in combination with Chinese stock market valuation, and actually provided a channel for Western investors or owners to share in the premium Chinese capital market.

It wasn't subsidies. More Chinese companies tried to raise funds in overseas markets because the cost of financing is much lower than at home. Chinese enterprises hope they can build capital channels and financing platforms in overseas markets to reduce their financing costs and increase their investment and financing ability.

Western complaints about the purchase prices offered by Chinese companies - which may be very high and thus attractive to the targets - come from competitors' jealousy, which will ultimately ruin the mutual benefits. It is not fair play.

Chinese companies' investments in overseas markets will remain strong in 2017, boosted by technological upgrades, a decrease in the rate of domestic economic growth, the valuation gap between China and Western stocks, US Fed interest rate increases, etc., but growth will slow for both foreign and domestic entities. Companies will pay more attention to improvements in the global value chain when proposing overseas M&A deals, and investment in Belt and Road countries is encouraged and supported.

The government didn't intend to prevent normal outbound FDI through tighter foreign exchange rules; rather, it aimed to improve sustainability and to prevent money laundering. The pressure on both the price and volume of Chinese foreign exchange reserves can be expected to further relax in 2018 - or earlier - depending on the US federal interest rate cycle. Structural adjustments will help. So we forecast that the driving forces of growth will remain steady.

Europe was the first destination that abstracted Chinese investment. From 2014 to 2016, the United States, Britain, Australia, Germany, South Korea and Canada topped the list of M&A activity with Chinese companies. The companies will take Europe as their first investment target in 2017, according to Morning Whistle. We hope both sides can open their minds and cooperate well to share the China premium and other benefits. We also hope Europe will remain the first choice for Chinese corporate M&A activity.

The recovery of the world economy needs inclusive, fair and green investment. We hope the investments from Chinese companies will bring more opportunities to the destination countries, and promote inclusive development.

We also noticed that the Chinese government is trying to absorb more foreign investment and giving more freedom to local governments at the beginning of 2017. We appreciate the help of Western investment in promoting China's economic growth over the past 30 years. And we believe that Chinese investment overseas will bring a better future to the world.

The author is a co-founder of Morning Whistle Group. The views do not necessarily reflect those of China Daily.