Overseas merger and acquisition (M&A) activities by Chinese companies may slow this year, due to the global economic crisis and difficulties in raising funds, said experts and entrepreneurs on Monday at the China-US Executive Summit held by China Institute.

Most of the M&A deals would be in natural resources-related sectors and value-added manufacturing sector, the experts said.

The financial crisis is not only jeopardizing Chinese exports, but also dampening the confidence of local players in going overseas. "There is some change in their M&A strategy and they are much more cautious than before, said Norman Yen, board advisor, SmithStreet Solutions, a Shanghai-based market research company which assists Chinese companies to go overseas.

Gregory G.H. Miao, partner, Skadden, a leading US law firm which has handled many big M&A cases by Chinese companies, agreed. "There will be no wave of global M&As as widely expected, at least this year, and the recent M&A deals are not exactly representative of the fact," he said.

Earlier this year, Chinese companies like Minmetals and Chinalco had announced mega overseas M&A deals.

The warning by experts comes on the heels of the latest report from China Council for the Promotion of International Trade, which indicates that a majority of the companies surveyed will not add too much muscle for investing outside China this year and in the next few years, as overseas businesses have been hurt by the financial crisis, although they all view overseas investment as a long-term strategy.

The financial crisis has affected a slew of international companies, which as many believe, creates niche opportunities for Chinese players to invest overseas. The Chinese government has since last year come out with policies to encourage local companies to step up their efforts in going overseas and to strengthen competitiveness.

"For Chinese enterprises, investing overseas is currently attractive as the price is much low," said Qi Bin, director of the research center at China Securities Regulatory Commission.

From January to February this year more than 20 overseas M&A deals worth US$20 billion have been inked by Chinese companies. But experts said the trend is momentary and an M&A wave cannot form until the global economy recovers.

"When it comes to overseas investment, Chinese companies have to be careful. The biggest problem is how to get sufficient funds as majority of them are small- and medium-sized," said Yin Mingshan, president of Lifan Industry (Group) Co Ltd, a leading motor producer.

Another stumbling block is the fact that most of the M&A policies issued by the government are tailored for big companies.

"More big M&A deals are expected this year," said Yin.

"There is also a possibility of value-added manufacturing companies seeking investment opportunities, to improve their skills and technology, and to enhance channels or brand awareness," he said.

(China Daily April 28, 2009)