One of the largest deals to be axed was the US$1.2bn acquisition of MoneyGram, a US money transfer business, by Ant Financial, a Chinese online payment company owned by Alibaba. It was rejected by the US Committee on Foreign Investment, which cited national security concerns. Ant Financial went on to raise US$14bn from a consortium of multinational investors.
Deals are still happening but there are fewer and for less money than in previous years, with Europe and Southeast Asia taking center stage as China strives to reduce its reliance on the US.
In July 2018, Chinese Premier Li Keqiang hosted European Union leaders in Beijing with both sides agreeing on the need for free trade and multilateralism. The two sides also agreed to work together on World Trade Organization reforms. China’s bids in Europe subsequently increased by 81.7%, from $33.2bn to $60.4bn over the year.
Still, it has not been easy sailing for the Chinese here either, with the UK, Germany and France carefully scrutinizing investments. Germany has blocked deals, including the proposed takeover of German machine-tool manufacturer Leifeld Metal Spinning AG by the Yantai Taihai Group — again, citing security concerns.
Companies seek to diversify
Meanwhile, the ongoing trade dispute coupled with China’s slowing economic growth is prompting companies to diversify their production and supply chains. Our January 2019 Trade Survey revealed that 57% of tech and 53% of automotive businesses were reviewing their procurement or sourcing strategies.
Demand from buyers for audits of companies in Indonesia and Cambodia rose by more than 50%, with increased demand throughout Southeast Asia. Bangladesh, a popular manufacturing base for clothing companies, saw a 37% growth in audits as a result of buyer interest, the survey reported.
Other companies are looking to keep their basic manufacturing in mainland China but move value-added activities to Taiwan or Singapore. This is because the site of the last substantial transformation — which can be an element of sophisticated assembly, software download or another large value-added activity — is considered the country of origin according to US Customs and Border Protection (CBP) non-preferential rules of origin, thus mitigating tariffs.