Sumeet Chatterjee and Kane Wu -
US corporate acquisitions in China collapsed to their lowest level for 14 years in the first half of this year, as trade tensions between the two countries and uncertainty about Chinese government regulations took a toll on deal making.
The value of mergers and acquisitions involving American companies in China dropped 32 per cent to just $523 million in the six months to June 30 from $771 million in the same period last year, and were down 87 per cent from $4 billion in the first six months of 2015, according to Thomson Reuters data.
Bankers and lawyers involved in deal making say that increasing signs of trade friction between Washington and Beijing are acting as a deterrent. The tensions were reflected at a meeting earlier this month when officials from the two countries failed to agree on major new steps to reduce the US trade deficit with China.
American companies do not want to make acquisitions in an environment where they could get caught in crossfire between the two governments, these sources said. That could happen if, for example, US President Donald Trump’s administration imposed punitive tariffs on Chinese steel and other products and Beijing retaliated with its own action against American goods or entities.
That in turn leads to the danger that American companies won’t be able to take full advantage of China’s still buoyant economic growth of just under 7 per cent a year, adding further to the stresses in the trade and investment relationship between the two countries.
“The new norm for China and the US is to be at odds on trade issues. As of now, they are having huge differences with regards to the steel industry, huge differences with regards to trade imbalance,” said Roy Zou, a Beijing partner at law firm Hogan Lovells. “I don’t see a big increase in US investments in China.”
China’s Ministry of Commerce (MOFCOM) did not respond to Reuters faxed request for comment on the drop in US acquisitions. The decline is happening at a time when Chinese deals in the US are still rising, though opposition in Washington to certain kinds of Chinese purchases on national security grounds is also increasing and could add to tensions.
European companies’ deal making has also been declining but at a slower pace. Their acquisitions in China in the first half of this year were worth $223 million, against $268 million in the same period last year.
Foreign firms have complained for some time about not being offered a level playing field in China. Among their concerns are restrictions on foreign ownership in key sectors — including finance and technology — and various regulations that favour domestic firms over foreign rivals.
And all of this can make them think twice about pulling the trigger on a major acquisition, trade experts said. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
