Mergers and acquisitions by listed companies have been crucial in supporting China’s growth and reform, the top securities regulator said on Aug 15, an indication of greater policy support for the capital market to help reform inefficient State-owned enterprises and reduce excess industrial capacity.
The value of M&A deals by Chinese listed companies reached 2.39 trillion yuan ($360 billion) by the end of last year, making China the world’s second largest M&A market, according to the China Securities Regulatory Commission.
A total of 118 companies in industries including steel, coal, cement and shipbuilding carried out M&A deals worth 233.7 billion yuan last year, the CSRC said, noting that the dealmaking has helped reduce “malignant” competition and excess industrial capacity.
Meanwhile, listed SOEs led the M&A activities last year, completing 678 M&A deals worth 1.02 trillion yuan, accounting for 43 percent of the M&A market, according to the CSRC.
Analysts said that the CSRC’s statement highlighted the encouragement for the greater role of the financial markets to serve the economy, which was emphasized by the top policymakers at the recent National Financial Work Conference.
“Deals that will help with the policy effort to reduce industrial capacity, increase corporate efficiency and upgrade the country’s strategic industries will certainly receive strong encouragement from the regulator,” said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.
Since last year, China has tightened scrutiny on both domestic and outbound M&A deals, especially transactions unrelated with companies’ core business, to curb speculation and capital outflow.
“It is expected that leading Chinese corporations may take a break from their acquisitive outbound activities but turn back to their home market to pursue domestic consolidation opportunities, with SOEs leading the way as they are under pressure amid the SOE reform to grow into huge industry champions,” said Wang Yiqing, China editor at deal data provider Mergermarket.
In the first half of this year, the Chinese mainland saw M&A deals worth a total of $135.7 billion, down 22.9 percent year-on-year due to tighter regulation, according to Mergermarket.
Hong Hao, chief strategist at BOCOM International Ltd, said more M&A transactions could be expected in the coming months, given the latest policy support.
“A low interest rate environment combined with improved earnings growth is a good recipe for M&A deals,” he said.