China may take 5-10 years to hit global M&A in big way

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Beijing, Nov 13: The global credit squeeze has pushed more deal makers away from banks and towards alternative sources of funding such as China, but politics could hamper for years Beijing’s ambition to make a major corporate acquisition.

China, flush with cash from booming trade and soaring stock markets, is mentioned routinely in almost every deal that surfaces, but Beijing’s reputation for not playing the trade game fairly is likely to limit its acquisitions to secondary markets and companies or minority stakes with strings attached.

“It will take a long period of time before the West’s hostile attitude towards Chinese companies disappears,” said Sun Zhe, a professor of American Studies at Fudan University in Shanghai.”We may not see any major acquisition by a Chinese company for 5-10 years,” he said. Aside from political issues, Sun said Chinese executives lack the international experience to manage a large acquisition.

“It’s a learning process, from many perspectives,” he said.

Responding to the latest rumor, China Development Bank on Monday denied it had bought a small stake in Rio Tinto, a sign -- according to a British newspaper -- that Beijing had its eye on the world’s third-largest miner.The stiffest opposition to China’s corporate expansionism comes from the United States, where product safety, a huge trade surplus and weak yuan are rich fodder for debate ahead of the presidential election.

Lenovo’s 2005 acquisition of IBM’s loss-making personal computer business is possibly China’s boldest move to date, but US political opposition put paid that year to state-backed oil firm CNOOC’s $18.5 billion bid for US peer Unocal.Now, European policy makers have joined the Americans in openly criticizing Beijing for undervaluing the yuan, making mainland exports cheaper and putting upward pressure on the euro.

European Central Bank chief Jean-Claude Trichet will lead a group of finance ministers to China this month to discuss the yuan. The rising pressure on China comes as the mainland posted a record trade surplus of $27 billion in October.

“Any significant takeover of a strategic company would be highly unlikely,” said Glenn Maguire, Societe Generale’s chief economist for Asia. “There are a whole range of political concerns, which to a degree are very valid.” Beijing understands that Australia is unlikely to allow a foreigner to buy Rio, a major resource company, but some bankers said Chinese resource firms could team up with BHP Billiton Ltd/Plc to help finance the industry’s biggest takeover.