Australia: Tails will wag on the Belt and Road - Chinese outbound investment in 2018

As Chinese authorities strengthened their scrutiny of Chinese outbound investment, Chinese deal making activity slipped in 2017 by nearly a third with Asia Pacific outbound transactions nearly halving.

Despite the slowdown, mergers and acquisition by Chinese companies along the Belt and Road initiative soared to USD33 billion of investment by the third quarter of last year.

In this the year of the dog – a year of caution and prudence – in general we expect a cautious recovery of Chinese outbound investment, with a tail that will wag for targets on the Belt and Road.

Deposits payable upfront by Chinese bidders will continue to be the norm.


As predicted in our 2016 M&A Review, efforts to stabilise the yuan saw a heightened scrutiny of Chinese outbound investment by Chinese authorities resulting in a reduction of deal making by Chinese investors and lengthy approval times for outbound deals.

The Chinese government said in August it would introduce restrictions on Chinese private companies making overseas investments in areas including real estate and entertainment to curb "irrational buying". In particular, regulators tightened approvals reviewing deal agreements in considerable detail and requiring lenders to assess their exposure to offshore acquisitions by several large companies which have been active in overseas acquisitions including Dalian Wanda and the Fosun Group. These three companies between them had spent a record $220 billion in overseas assets acquiring landmark properties, movie studios to European football clubs.

The scrutiny and review by lenders, has seen Dalian Wanda sell its stake in UK flagship property One Nine Elms, its projects in Australia – Goldfields and Jewel resort projects and $1.2bn stake in its listed films unit to Alibaba.

As predicted in our 2016 M&A Review , the perception of increased regulatory risk (including capital outflows) meant successful Chinese investors needed to demonstrate a high degree of credibility with sellers and provide clarity on funding.

Consistent with Australian market practice from 2013 (see our previous piece), European deal makers wary about the clamp down on capital outflows increasingly asked for the payment of upfront deposits in 2017 including:

  • CC Land put down a USD52.7 million deposit for its £1.15 billion acquisition of the Cheesegrater skyscraper in London.
  • Zhengzhou Coal Mining Machinery a USD64 million deposit for the acquisition of Robert Bosch's starters and generators business for 10 times as much.
  • China's ZTE paid a USD10 million deposit before its acquisition of a 48 percent shareholding in Turkey's Netas Telekomunikasyon for $101 million.


The increased scrutiny by Chinese authorities of outbound deals, has not impacted on mergers and acquisitions in countries along the Belt and Road Initiative which soared in 2017.

Unveiled in 2013, the Belt and Road Initiative is aimed at building a modern-day Silk Road of connectivity and trade by land and sea (see our previous piece). In 2017, President Xi Jinping committed $124 billion to the Belt and Road Initiative, strong support that investments in the Belt and Road Initiative are strategic and not exuberant. Indeed at 19th National Congress President Xi Jinping confirmed that the Belt and Road Initiative is crucial to China's "opening-up".

Consistent with this state endorsement, anecdotally, Chinese companies enjoy a relatively smooth approvals process for deals along the Belt and Road. In support of this China's foreign exchange regulator – the State Administration of Foreign Exchange – stated that Chinese companies would be encouraged to participate in the Belt and Road activities.

Chinese companies' buying spree in the logistics industry, bolstered by the Belt and Road Initiative, is gathering pace, with both the number of deals and the value of those deals hitting a new record in 2017 – with the aggregate amount of Chinese firms' M&A in logistics reaching US32.2 billion through mid-December of 2017, more than double the $12.9 billion seen in all of 2016.

Deals have included:

  • Global Logistics Properties – A private equity consortium of Hopu Investment Management, Hillhouse Capital Group, Vanke Group and the financial service investment arm of Bank of China was backed by GLP CEO Ming Mei in its US11.6 billion acquisition of GLP marking Asia's largest private equity buyout. GLP is Asia's biggest warehouse operator and boasts a $41 billion portfolio of assets spread across China, Japan, Brazil and the United States.
  • Logicor – China Investment Corp acquired European logistics company Logicor for $13.8 billion representing the largest-ever European real estate deal in terms of transaction value and the fourth-largest Chinese foreign acquisition to date.
  • Alibaba Group – Invested $1 billion in June to raise its stake in Southeast Asian online retailer Lazada Group, a move to further expand its global footprint in overseas markets. Launched in 2012, Lazada helps more than 135,000 local and international sellers as well as 3,000 brands serving the 560 million consumers in the region.
  • Cargo drones – On 1 February Everpine announced its acquisition of a controlling stake in Distar Air – a Czech company that designs Samba light aircraft. Everpine intends to covert the two seat Samba light aircraft into drones capable of reaching the Xinjiang province, with the cost of running these cargo-drones the same as running a truck.


The Belt and Road Initiative is all about trade and connectedness and as you may recall, in May 2016, President Xi Jinping included Australia on the Belt and Road map.

In 2018, we expect to see a cautious recovery of Chinese outbound investment with a particular focus on assets and industries which support the Belt and Road Initiative. As commerce increases the resulting benefit of rising demand for goods will be a focus on logistics facilities and management. The acquisitions by non-Chinese investors including the $1.05 billion bid by US Equinix of Metronode and the $200 million acquisition of a logistics portfolio by Singapore's ARA Asset Management shows the recognition by investors of the likely importance of these assets this year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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