ODI, M&A, & Policy Perils

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FDI 9Foreign Direct Investment) is so yesterday…today is all about Chinese ODI (Overseas Direct Investment).

• ODI US$60bn in 2010? RT @China_Daily: Overseas direct investment may soar http://tinyurl.com/yklgb26 7:32 AM Feb 27th

China Daily suggests rapid growth in 2010:

“There is little doubt that the nation’s ODI in 2010 will climb up to $60 billion,” said [Liu Zuozhang, director general of the Investment Promotion Agency of MOFCOM] adding the year-on-year growth could range from 15 to 39 percent.

During the first half of 2009, China’s ODI slumped nearly 52 percent as the world economy was still in limbo and domestic enterprises shied away from investment. However, things started to change in the third quarter of last year after ODI rebounded nearly 190 percent year-on-year to $20.5 billion.”

There are many reasons for China’s increased ODI activity, but one of the key ones has been access to strategic resources:

• The why of ODI? RT @chinahearsay: Is China trying to “lock up” the world’s natural resources? http://goo.gl/tMkt 7:10 AM Feb 27th

Of course, natural resources are not the only drivers. While they do form the base, China has invested in a variety of sectors and markets, as shown by this map of China’s ODI, and a case study of China’s investments in Italy:

• ODI mapped RT @tomredtape: No surprises: Australia is China biggest outbound investment… http://tinyurl.com/yhgkwg7 tks @shanghaiist 6:17 AM Feb 26th

• ODI analysis RT @andrewbatson: ‘Marco Polo Effect’: Chatham House paper on Chinese investment in Italy http://tr.im/Qcoq 7:52 AM Mar 1st

The Italy example (like in the wider EU) shows that:

• Chinese ODI starts “…with small-scale operations in trade-related activities” evolves into “acquisition of tangible and intangible resources deemed necessary to increase the Chinese presence in international markets and, more generally, to upgrade its technological and production capacities”

• “Chinese investments in Italy are increasingly targeting the acquisition of design and brands in key Italian sectors of specialization, and technological capabilities in sectors such as metalworking.”

• “Chinese multinational enterprises also are investing in Italy to get access to local competitive advantages in sectors such as automotive and home appliances. This location choice is clearly linked to the intention to tap local competences available at the cluster level.”

Much of the recent ODI news has been around the proposed purchase of Hummer by the Sichuan-based company Tengzhong. As most will have noted by now that plan failed. However, some saw that failure coming from the start, as the plan did not fit with China’s ODI strategy (selected state auto firms first, please), or its newfound commitment to sustainability (gas-guzzling Hummers? No thank you!).

• M&A & Policy: Simple. It was “not in line with the government’s intention” RT @China_Daily: Analysts: Hummer deal fated to fail http://tinyurl.com/ybk7uau 8:04 AM Mar 1st

• With excellent @DanHarris quote too, of course! RT @DanHarris: Excellent Forbes article on the failed Hummer sale: http://is.gd/9fTdV 6:14 PM Feb 26th

• M&A meddling RT @westlawchina: Beijing plays potent dealmaker, blocker in China M&A http://bit.ly/ashU5h #M&A 6:05 PM Feb 26th

RT @GE_Anderson: New China auto policy expected in 2010. Will emphasize consolidation and overseas investment. http://is.gd/8U550 8:09 AM Feb 22nd

For ODI, or M&A, ignore Chinese government policy at your peril! And expect to see more (of the “right” sort of) activity.

4 Responses to “ODI, M&A, & Policy Perils”

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