Better than barbarians

DESPITE the anaemic state of the global economy, companies from mainland China are investing abroad like never before. Chinese firms closed overseas deals worth $61 billion last year, according to a new analysis by the Rhodium Group, a consulting firm. This was up by 16% on 2014, and is the highest level on record. What is more, these firms are not all chasing natural resources such as oil and copper, as in the past.

On January 12th Dalian Wanda, a Chinese property and entertainment conglomerate, confirmed its long-rumoured purchase of Legendary Entertainment for about $3.5 billion. The acquisition of the American film studio behind “Jurassic World”, “The Dark Knight” and other blockbusters fulfils the dream of Wang Jianlin, Wanda’s boss, of becoming a global movie mogul. The same day, news surfaced that Beijing Kunlun Tech, a Chinese online-games firm, has acquired a majority stake in Grindr, an American social network for gay men, for about $93m.

However, perhaps the most intriguing Chinese foreign purchase of the week is the acquisition by a state-owned chemicals firm of an obscure German maker of machinery to process rubber and plastic. China National Chemical Corp, more commonly known as ChemChina, bought KraussMaffei for about $1 billion.

ChemChina itself rose from obscurity thanks in large part to Ren Jianxin, its chairman. Three decades ago he borrowed 10,000 yuan (less than $2,000 at today’s rates) to start a solvents factory. In the following years, he forged the ChemChina empire by taking under his wing more than 100 distressed state-owned chemical plants across the country, with the government retaining ownership. He minimised lay-offs by shifting workers to one of the group’s sidelines, Malan Noodle, a restaurant chain. He professionalised management by bringing in outside consultants. Even a foreign chemicals boss who insists that “90% of ChemChina’s assets are rubbish” grudgingly praises Mr Ren’s vision and management style.

ChemChina is now emerging as the most dynamic globaliser among China’s state enterprises. Already, it has a string of foreign acquisitions under its belt (see table). Most notable among these is its $7.7 billion deal last year to buy Pirelli, an Italian tyremaker, which will be completed shortly. That was the largest Chinese purchase yet seen in Italy, and the KraussMaffei deal will be the biggest foray by a mainland Chinese firm into Germany. ChemChina is also in a bidding war with Monsanto, an American agribusiness firm, for control of Syngenta, a big Swiss rival. If ChemChina prevails with its latest reported bid for 70% of Syngenta, valuing it at $44 billion, it will be the biggest Chinese foreign acquisition yet.

Why are Chinese firms so keen to go abroad? Some pundits suspect that the firms’ bosses, afraid of getting caught up in President Xi Jinping’s anti-corruption purge, are parking assets abroad. Yet there are easier and quieter ways to get yuan through China’s porous currency controls. Anyway, some of the firms buying abroad, such as ChemChina, are owned by the state itself. Others think investment opportunities are drying up on the mainland. But even if Chinese growth is only 5-6% rather than the reported rate of around 7%, it would still be stronger than in the rich countries where Chinese firms are buying.

The main reason for Chinese firms’ buying spree is to get the brands, technologies and talent they lack, to capitalise on future waves of growth at home. That is not new in itself; what has changed is the warmth of the welcome they get. In the past, ruthless mainland firms, gobbling up resources firms, caused a backlash in the countries they entered. Today’s Chinese globalisers, says Klaus Meyer of the China Europe International Business School, are more sophisticated and hands-off with their acquisitions.

“ChemChina could be a good owner” of Syngenta, agrees Jeremy Redenius of Sanford C. Bernstein, a research firm, pointing to the success of its earlier acquisition of Adama, an Israeli firm. Some rich-world firms may now find Chinese ownership more attractive than suffering the rules of Western stockmarkets or the meddling of private-equity firms. The marauders from the Middle Kingdom may be more welcome than the barbarians at the gate.