China continues its drive to push mergers and acquisitions (M&A) in key sectors, to build 10 listed companies that can be internationally competitive by 2027.
The industries in question include integrated circuits, biopharmaceuticals and new materials, the Shanghai government said, with a target transaction volume of 300 billion yuan (US$41.4 billion) and total assets of more than 2 trillion yuan.
“[By 2027,] we will have significantly improved the capacity of financial intermediaries to support mergers and acquisitions and strengthened cooperation among market entities, districts, governments and enterprises,” the Shanghai government said, adding that with an improved mergers and acquisitions ecosystem and industrial capacity the city can better contribute to the country’s ‘high-value’ economic development goals.
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High-quality development is central to President Xi Jinping’s vision for China’s future, which emphasizes a shift from rapid growth to sustainable and innovation-driven economic progress.
The announcement in Shanghai follows the China Securities Regulatory Commission’s (CSRC) introduction of the ‘Six M&A Measures’ in September, which aimed to support transactions in strategic sectors to help listed companies move towards hi-tech, renewable energy and other innovative industries to evolve.
The September document also called for “greater tolerance” from policymakers and pledged to “respect market dynamics while upholding regulatory principles.”
Charlie Chen, head of Asia research at China Renaissance Securities, said: “We believe the Shanghai government’s announcement to support mergers and acquisitions is an important strategic document to steer China’s capital markets on the right path.”
However, some are skeptical about whether policy-driven mergers violate market mechanisms.
“Mergers and acquisitions are essential for business growth and efficient allocation of resources,” said Shen Meng, managing director of Beijing-based investment bank Chanson & Co. can focus on achieving these goals through heavy administrative intervention, ignoring real market needs.”
There have been around 3,000 mergers and acquisitions in China so far in November, focusing on ‘strategic emerging’ sectors. According to the CSRC, there are almost 2,700 country-listed companies in these sectors.
With a nagging real estate market and a slowing economy weighing on business confidence and investment, the Greater China region, comprising the mainland, Hong Kong and Taiwan, saw a 57.4 percent decline in total sales in the second quarter of this year value of mergers and acquisitions. This is evident from data published by S&P Global in November.
The initial public offering (IPO) market is also facing headwinds due to strict regulations, with 95 A-share IPOs in the pipeline looking to raise 61.8 billion yuan from November, a year-on-year decline of 83 percent, according to EY. These are the lowest levels since 2014.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice covering China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit the SCMP Facebook page Tweet pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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