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China Acquisitions:

What Does The Future Hold?

Why bad news in China might be good news in the US.

David Iwinski Jr.

Managing Director

david.iwinski@bluewatergrowth.com.

AUTHOR

David-Iwinski-Jr.png

David Iwinski Jr.

Managing Director

Blue Water Growth

david.iwinski@bluewatergrowth.com

US Mobile: +1 412 352 7997

China Mobile: +86 183 2128 4064

Skype ID: david.iwinski.bluewatergrowth

China Acquisitions: What Does The Future Hold?

Why bad news in China might be good news in the US.

By David Iwinski

 

The intelligence about recent China stock market corrections has been largely focused on how it is potentially dangerous to the global economy. In one sense, that is somewhat ironic as many business leaders have clamored for years for more transparency and open markets from China, claiming that the days of strong economic growth of 10.5% in 2010 and 9.5% of 2011 were artificial and propped up by the Chinese government. Then at last the Chinese support a much needed correction and now the same voices worry about a dip in global growth rates now that China looks have stabilized at 7.5% growth.

 

We can’t have it both ways folks. Further, some fret that the growing appetite for US acquisitions may cool as China firms reel from valuation drops and tighter cash.

 

Nothing is further from the truth. In fact, we think that China-based acquisitions of US firms strong in technology, manufacturing and solid brands will continue to grow in 2016 and beyond. There are several factors driving this trend.

 

Need for New Markets 

As China markets cool and the economy evolves towards a more consumer-based platform, China firms will need new markets to serve the production and operational resources that have ramped up over the past 20 years. To stay with a “China only” approach means a race to the bottom with lower margins and tougher competition amongst a shrinking industrial customer base, this time without preferential government deals to provide a soft landing.

 

Need for New Technology 

While China does many things very well, they still lag significantly in the creation of new technology. For all of the challenges that the US economy must face, we are still largely the innovation source for much of the world’s most creative and market-ready technology. Even corporations in China that may not seek US domestic markets and brands will still need to find new sources of technology to stay competitive in China. This will be a boon for young pioneering companies as their innovative products and services are acquired by China firms hungry for an edge in their increasingly demanding domestic markets.

         

Need for Diversification  

Many large Chinese enterprises still have a significant portion of their ownership vested in the founders or the founding family. Keeping all these assets under close control in an economy growing 11% to 12% is a great strategy but when things start to cool, it’s not likely that the pain will be spread equally. As the China market shifts, businesses with a very narrow focus tied to large industrial markets will be particularly vulnerable. Owner of these organizations will be looking to diversify.

 

All of these reasons will drive continued interest from China corporations in acquiring US firms, even while the growth rate in China falls. As an associate of mine in Beijing recently commented, “There is still so much opportunity to pursue here and yet a prudent leader will use this current state of adjustment to consider placing a bet elsewhere… and there is no better location to place such a bet than the United States.”

 

We heartily agree.

 

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