China is on the move, but some voices complain China is invading, giving its more than $1 trillion U.S. dollars foreign reserves mainly invested in overseas government bonds. Now China is acquiring natural resources abroad; its economy grew exponentially in recent decades; with a fourfold increase in its gross domestic product (GDP) since 1998; in 2010, China replaced Japan as the second largest economy. If China is to take the number one spot, its overseas acquisitions will be the reason. But acquisitions are not easy to achieve.
Although the Chinese government is encouraging Chinese companies to go global, much greater emphasis has been placed on industrial restructuring as part of China’s transformation. It suggests that Chinese companies will face a much more challenges than their Japanese and Korean counterparts did. Achieving synergies from acquisitions is the most difficult due to the disparities between market and planned economies. Recent examples include CNOOC’s (China National Offshore Oil Corporation) withdrawal of its $18.5 billion offer for Unocal Corp; China’s Anshan Iron & Steel Group’s cancellation of its agreement with U.S. Steel Development Corporation; and Huawei’s acquisition exit of U.S. 3Leaf.
Despite these headlines, state-owed enterprises still lead the way with their high-profile buyouts while private firms are gaining momentum in mergers. During the Hu Jintao-Obama summit in 2011, China and the U.S. announced deals totaling $45 billion, including a $19 billion agreement under which China will purchase 200 Boeing airplanes. Noting that U.S. exports to China have increased by almost 50 percent over the last two years, Washington and Beijing are navigating their transitional win-win economic relationship upon Xi Jinping’s visit to Washington 10 months ago. The Obama administration’s National Export Initiative reauthorizes the U.S. Export-Import Bank and have it prioritize lending support of U.S. exports to China; therefore to reclaim a 10 percent share of China’s imports by 2014, according to the U.S.-China Business Council.
Acquisitions increase competition; mergers spur alliances. In sensitive sectors involved with high technology transfer, a merger is more politically correct than an acquisition for ensuring technical partnership. China’s 12th five-year plan with a focus on developing strategy-based emerging industries is mainly involved with high technology. Despite its relative infancy, the Chinese government will invest $20 billion in the biotechnology industry in the next two decades.
China’s overseas acquisitions are a sign of a natural economic trend driving its globalization in this decade and beyond. It is inevitable but merger is a better strategy. Foreign companies, especially those that want to tap into new markets, may assess the benefits of integrating with Chinese firms and take the initiative. Corporations that have anticipated this trend, having developed post-acquisition plans for asset integration, and are collaborating with the Chinese government to ensure technology transfer in the public private partnership, will continue to reap benefits from their global strategies. For example, New Jersey expects it will lead the way with its competitive advantages in life science technologies and the pharmaceutical industry. Virginia’s defense industry is booming amid concerns over both nations’ need to develop better foreign policies in three areas: defense, national security and intellectual property.