M&As in China do politics still speak louder than money

M&As in China: do politics still speak louder than money?

A couple of foreign M&A’s of Chinese companies look likely to go through. Is it just a chip in the Great Wall of protectionism or a real shift in policy?

By Mrinalini Reddy

It was not so long ago, in 2009, when Coca-Cola‘s $2.4bn acquisition bid for a leading domestic drinks manufacturer was rejected by regulatory authorities, prompting foreign companies to complain that political considerations in China meant foreign acquisitions of top companies would simply not occur. Now there are signs that things are changing.

First, there was the news in June that Diageo had received approval from

China‘s anti-trust authorities to take over Shui Jing Fang, a famous Chinese white spirits producer.

The deal, a long time coming – two years in fact - must still be approved by the China Securities Regulatory Commission, but is significant in that it will be one of the first foreign acquisitions of a big Chinese listed company.

Then, in July, 20 years after it first entered China, Swiss food giant Nestlé announced its intent to acquire a 60 percent stake in Chinese confectionary company Hsu Fu Chi in a deal valued at $1.7 billion.

The Nestlé deal has still to cross its own regulatory hurdles but the successive announcements are striking in a country dogged by persistent criticisms from foreign interests over its protectionist tendencies toward domestic players.

Warren Liu, a veteran Shanghai-based executive, entrepreneur and, more recently, MBA lecturer at Tsinghua University and other institutions within

Greater China, begs to differ. Liu spoke to INSEAD Knowledge while he was in Singapore to lecture INSEAD MBA students who were taking part in a China Strategy elective course.

―There‘s a growing misconception that the Chinese government no longer welcomes foreign direct investment,‖ says Liu, whose research examines

structural changes within the country, with a broad, cross-industry perspective on what will be required for multinational companies (MNCs) to succeed. ―The

Chinese government is still very much trying to encourage foreign investment — the difference between the situation today versus the 1980s and 90s is that the government is becoming more selective in welcoming foreign investment.‖

Although no great fan of corporate acquisitions, especially as part of a market entry strategy into China, Liu concedes that from time to time buying a company

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