cover of EconPol Working Paper 33

What Drives Chinese Overseas M&A Investment? Evidence from Micro Data

Clemens Fuest, Felix Hugger, Samina Sultan, Jing Xing

In recent years Chinese foreign acquisitions have increased significantly, with Chinese investors are more likely to acquire larger firms, firms with lower levels of profitability and higher debt. This EconPol working paper from Clemens Fuest (EconPol Europe, ifo Institute, LMU), Felix Hugger (LMU), Samina Sultan (LMU) and Jing Xing (Shanghai Jiao Tong University) shows investors don’t seem to pay more for target firms with given characteristics, questioning the view that they are subsidized to outbid other investors. Policy initiatives like the Belt and Road Initiative and Made in China 2025 influence state-owned but not private Chinese investors. After acquisition by a Chinese company, targets exhibit lower growth in capital productivity, but a higher growth of employee compensation.

Abstract

In recent years Chinese foreign acquisitions have increased significantly. In Europe and the US, these investments are often criticized. Critics argue that Chinese investors outbid other investors with help from their government, that the acquisitions lead to undesirable technology transfer or that they may have negative consequences for the employees of the target firm. We use a large deal-level dataset on cross-border acquisitions to investigate whether Chinese foreign acquisitions differ from cross-border investment coming from other countries. We find that relative to non-Chinese investors, Chinese acquirers indeed appear to be different in some dimensions. They focus on targets with higher debt levels and lower profitability. At the same time, they don’t seem to pay more for targets with given characteristics, questioning the view that they are subsidized to outbid other investors.  Policy initiatives like the Belt and Road Initiative and Made in China 2025 influence state-owned but not private Chinese investors, suggesting that geopolitical or technology interests play a role. In the years after the takeover, target companies acquired by Chinese investors exhibit lower growth in capital productivity but a higher growth of employee compensation.

Citation

Clemens Fuest, Felix Hugger, Samina Sultan, Jing Xing: What Drives Chinese Overseas M&A Investment? Evidence from Micro Data EconPol Working Paper 33, November 2019