Chinese auto investors are increasingly pouring money into Europe
Chinese auto investors are increasingly pouring money into Europe
Author: CSEBA / SEEbiz / Reuters
14th June 2018
STOCKHOLM - Chinese auto investors are increasingly pouring money into Europe rather than the United States because of intense U.S. scrutiny of their deals under the Trump administration, according to industry sources and M&A data.

More than a dozen leading M&A bankers, lawyers and consultants told Reuters the number of mandates from Chinese clients to make investments in the European auto sector were increasing, while those for the U.S. sector were declining.

“Given the way that things are tightening up in the United States, Europe for China is the most obvious non-domestic market that they’re pushing into,” said Charlie Simpson, who specializes in the auto sector for consultancy KPMG’s global strategy group.

The trend, which comes as Washington is locked in a trade battle with Beijing, is supported by an analysis of data of auto sector investment in the U.S. and European markets.

The United States accounted for 26 percent of the total number of Chinese deals in either of the markets in the first five months of this year, according to the figures from Thomson Reuters and research group Dealroom. That is down from 31 percent in the same periods of 2017 and 2016.

There have been 19 deals in total across both markets so far this year, worth more than $10 billion, according to the data.

At the center of the trade dispute are U.S. allegations that China has stolen American intellectual property. There has been increased scrutiny of investments in sectors including autos, where companies are developing technologies such as electric and autonomous vehicles, artificial intelligence and robotics.

Washington says it is looking to broaden the reach of the Committee on Foreign Investment in the United States (CFIUS), which examines deals for national security risks, to further limit Chinese efforts to acquire U.S. technology.

Thirteen of the 17 bankers, lawyers and consultants interviewed by Reuters, based in Europe, the United States or China, said their Chinese clients were increasingly choosing Europe over the United States because of growing difficulties with CFIUS.

This means a large group of investors are hunting assets in Europe, mainly Chinese state-owned auto firms, listed carmakers and private equity funds, the industry sources said.

They include state-owned SAIC Motor Corp, BAIC Group and FAW Group Corp; and listed players Guangzhou Automobile Group and Ningbo Joyson Electronic Corp, the people said.

Samson Lo, head of Asia M&A at UBS, said all big Chinese carmakers who wanted to do overseas deals were steering clear of the United States.

“The immediate reaction is: ‘I don’t think in the current environment it is for me’,” he added.

FAW Group Corp and Ningbo Joyson Electronic Corp could not be reached for comments, while SAIC Motor Corp, BAIC Group and Guangzhou Automobile Group did not respond to emailed request for comments.

Some Chinese buyers are beginning to change investment tactics, even in Europe, as they look avoid political and regulatory complications, according to the industry sources.

They are ditching their favored “direct” M&A model - buying a company and gaining total control over the technology - for other access routes such as joint ventures, patent purchases that raise less political and public concern.

Other options being explored also include licensing deals - where they could gain the ability to use, modify and resell the target’s technology - and bringing on a local banking or automotive or private equity player as co-investors.

In many cases, these investment avenues may not be subject to a CFIUS or European review, the sources said.

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