A recent article(registration required) in the McKinsey Quarterlyby Thomas Luedi, a principal in McKinsey’s Shanghai office, points out the tremendous growth in foreign acquisitions made by Chinese firms. According to the report, foreign direct investments made by Chinese companies increased tenfold from 2003 to 2007. Although, measured as a percentage of GDP0.8 percentChina still substantially lags behind France, Germany and the U.K. in this area, the article notes.
The piece details the changing strategy behind the acquisitions: Chinese firms remain focused on obtaining raw materials needed to power China, but are also now working on strategic deals in a number of industries, for varied reasons that include desire to help these companies globalize, to get access to new markets and to obtain critical skills.
One point that stood out to me was McKinseys forecast for government ownership levels in publicly traded state-owned enterprises. According to its research, while the state is currently the majority owner in many of these companies, the management consultant expects that to change. The Chinese governments stakes are shrinking, and if McKinseys prediction proves true, those pieces will be almost nonexistent by 2012. This, Luedi writes, means that their shareholders will increasingly hold them accountable for the value created (or destroyed) by their overseas acquisitions. He continues: That will further reduce fears that they might act on behalf of the government. It will also make them obtain access to funds through conventional channels, such as market-rate equity issuance or debt.