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Global Capital Confidence Barometer China - October 2012 - EY - China

Global Capital Confidence Barometer China - October 2012

Chinese executives focus on
organic growth

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Rather than pursue opportunistic M&A, many say their priorities are paying down debt and focusing on organic growth.

Chinese executives are still cautious about engaging in M&A amid persistent valuation gaps and strong sentiments that global market conditions haven’t improved as expected, our seventh Global Capital Confidence Barometer shows.

Chinese executives responding to our October 2012 survey are substantially less upbeat about the outlook for both the global and local economy than six months ago; they are also more pessimistic than their global peers about the prospects for short-term improvement. The majority of Chinese respondents view the economic situation as stable.

Rather than pursue M&A, many say their priorities are paying down debt and focusing on organic growth. This is despite Chinese companies remaining financially healthy for the most part, with low financial leverage, good access to credit and little need to refinance debt.

In relation to organic growth, unlike global companies’ focus on core products and existing markets, Chinese companies are more likely to look to technology to help them exploit new markets and products.

Chinese companies are even more likely to report direct impact from the ongoing Eurozone crisis than their global peers. They expressed worries of the crisis affecting their own profitability and capital agenda. Many respondents said they are focused on counterparty default and supply chain risks in the region.

One interesting development in latest survey is that Chinese respondents listed the US, Brazil, Indonesia, India and Japan as their top five outbound investment destinations; the prevalence of key developing markets on this list may be because China is finding less competition for assets in these countries.

A recurring theme in this survey is Chinese disappointment with asset prices for remaining disproportionately high despite economic weakness. Chinese executives are more likely than their global colleagues to see valuations decreasing and the valuation gap contracting.

But Chinese companies are clearly taking on board lessons learned from previous transactions.

When asked the main reason for deals not meeting expectations, 41% of Chinese respondents cited poor integration execution, up from just 13% six months earlier, suggesting they increasingly recognize the importance of integrating acquisitions well.

The M&A experience Chinese corporates have gained in recent years highlights the degree to which they are moving to a new stage of development.

Pip McCrostie Pip McCrostie

Global Vice Chair,
Transaction Advisory
Bob Partridge

Greater China Leader,
Transaction Advisory Services
Eleanor Wu

Transaction Advisory
Services, Beijing
Tony Tsang

Transaction Advisory
Services, Shanghai
Bernard Poon

Transaction Advisory
Services, Hong Kong
Audry Ho

Transaction Advisory
Services, Taiwan

About this survey

The Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel is comprised of select EY clients and contacts, and regular EIU contributors. This snapshot of our findings gauges corporate confidence in the economic outlook, and it identifies boardroom trends and practices in the way companies manage their capital agenda.

Profile of respondents
  • Panel of more than 1,500 executives surveyed in August and September 2012
  • Companies from 41 countries
  • Respondents from 24 sectors
  • 102 China respondents
  • 754 CEO, CFO and other C-level respondents
  • More than 400 companies would qualify for the Fortune 500 based on revenues

Survey demographics (China)

Participants were representatives from the power and utilities, automotive, technology, mining and metals, financial services, consumer products, diversified industrial products, life sciences, and oil and gas industries.

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