More Outbound PRC M&A Activity?
June 9th, 2006
China’s State Administration of Foreign Exchange (SAFE) has made it easier for PRC firms to get foreign exchange in order to expand abroad, according to this China Daily story.
This does not mean PRC firms can trade RMB for dollars to invest in US stock markets as financial investors. In other words, this is not a QDII program. What it means is that the next time a CNOOC wants to buy a Unocal (or a Legend wants part of IBM’s business) SAFE will (more easily) let the PRC firm access some of China’s vast foreign exchange reserves to fund the acquisition. It also means a PRC firm could trade RMB for hard currency to pay for an overseas office.
Given the global ambitions of some PRC firms and their interest in buying sources of raw materials, brand equity and other overseas assets, it is likely we’ll see more and more outbound PRC M&A activity.
However, the floodgates are not entirely open. SAFE rules on foreign exchange are only one layer of the rules governing outbound PRC investment. The PRC government will still play a role in shaping outbound capital flows in other ways.
Another issue will be the receptivity of jurisdictions where target companies are located. As the failure of the Dubai Ports and Unocal deals show (and the US government’s decision to be careful about Lenovo computers), perceptions of national interest can affect things on both sides of an M&A equation.
The new SAFE notice is here and a press release about it is here (all in Chinese). The notice is titled 国家外汇管理局关于调整部分境外投资外汇管理政策的通知 and it comes into effect July 1.