KUALA LUMPUR: Chinese companies are increasingly eyeing opportunities in Malaysia, with mergers and acquisitions (M&A) by private Chinese investors becoming the key drivers of China’s outbound direct investment, said HSBC Bank Malaysia Bhd.
M&A have become the fastest way for Chinese companies to tap foreign markets and move higher up the value chain, said the bank.
Foreign currency depreciation against the yuan, it said, provided a favourable environment for China’s M&A activities.
It added that increased disposable income among China’s 1.4 billion consumers was also fuelling interest in acquisitions in the leisure, and consumer goods sectors.
“This has been reflected in the Chinese investment into Malaysia. So far this year, China’s M&A into Malaysia have been the busiest on record, both in terms of volume and number of big deals.
“Real estate, consumer products and retail have been the most active sectors,” it said in a statement on Thursday.
In the first seven months of this year, the total value of Chinese M&A into Malaysia stood at US$830mil (RM3.35bil), nearly four times the figure for all of 2014.
The landmark deals include Greenland Holding Group’s purchase of Southern Crest Development Sdn Bhd, at US$658mil (RM2.66bil), Longcheer Holdings’ purchase of Pearl Discovery Development Sdn Bhd at US$89mil (RM359.7mil), and Parkson Retail Group buying YeeHaw Best Practice Sdn Bhd in the dining and lodging industry.
The bank said several factors were driving the growth of China’s outbound direct investment (ODI).
“Firstly, in our view, China’s ODI will to continue to grow by around 20% a year, with China overtaking the US as the world’s largest outbound direct investor in the next few years.
“This year, the pace of investment is set to accelerate, pushed by the massive infrastructure investments in Asia and Europe envisioned in the ‘One Belt, One Road’ initiative,” it said.
It added that Chinese companies were turning to agriculture, technologies, high-end manufacturing, consumer goods, real estate, services and brands.
Another important trend is that private investors are becoming the main driving force of ODI.
“Private-owned enterprises are investing in more value-added industry sectors such as agri-business, technology, high-end manufacturing and real estate in more countries and regions.
“They are looking for intellectual property and brands to deploy in the Chinese market,” it said.
The increase in China’s ODI is driven by the central government’s strong encouragement for domestic companies to invest overseas in a bid to boost their international competitiveness.
China’s ODI grew 19% on-year on average between 2009 and 2014.
By comparison, foreign direct investment (FDI) into China grew on average 5% on-year during the same period.
Last year, China’s ODI reached US$116bil (RM469bil), almost the same as the FDI total of US$120bil (RM485bil).
“As Chinese companies speed up their pace of overseas expansions, the number of renminbi (yuan)-denominated deals is likely to increase.
“All in all, Chinese corporate overseas investment is supported by the central government and is helping to foster China’s participation in the global economy.
“This is a new era of global cooperation, and it is a clear win-win story,” it said.