Outbound merger and acquisition (M&A) deals by Chinese buyers increased by more than 30 percent to a new peak of 188 transactions in 2010, with a value of about US$38 billion, a report from PwC said on Monday.

The United States has become a major recipient of Chinese M&A investment with 34 deals in 2010, compared with 21 in 2009. There were also 20 deals in the European Union, 17 in Africa and 16 in Japan last year, the company said.

In overseas M&A, Chinese companies dominated in the raw materials and energy sectors, accounting for about 35 percent of the total outbound deals. They were also interested in machinery and equipment manufacturers as well as automotive manufacturers in mature markets, according to the report.

"There have been an increasing number of acquisitions of high-technology companies, as Chinese buyers look to bring knowledge and experience back to China to foster its developing economy," said Nelson Lou, a transactions service partner at PwC China.

The country's largest single outbound deal last year came when China Petrochemical Corporation (also known as Sinopec Group) paid $7.1 billion for a 40 percent equity stake in Repsol YPF Brasil SA.

PwC said that overall Chinese M&A reached a record level last year with 4,251 announced transactions valued at more than $200 billion. Compared with 2009, the number of deals increased by 16 percent with a growth in value of 27 percent.

According to Lou, State-owned companies contributed more than the private sector in M&A deals in terms of value. However, private equity emerged as an important source of capital for private companies. Private equity played a part in about 580 transactions in 2010, a year-on-year growth of 66 percent, he said.

"The developments in the private equity industry are rapid, and nearly all of the major private-equity houses are gearing up to meet the growing competition from the burgeoning domestic private equity industry. The growth and localization of the industry in China is unstoppable," said Andrew Li, a partner at the consultancy.

During the next five years, the government is likely to accelerate overseas investments and use the currency reserve to buy more resources, Zheng Xinli, executive deputy director at the China Center for International Economic Exchanges said at a forum on Saturday.

Overseas M&A can help Chinese companies improve technology during the globalization process, in tandem with the country's independent innovation capability, Zheng said.

"The policies and direction set by China's 12th Five-Year Plan (2011-2015) are likely to support continued M&A activity, as the government aims to continue the domestic consolidation and restructuring of industries, while ensuring foreign investment is optimized and 'going abroad' is accelerated," said Li.

PwC predicted that China's M&A deals will focus on more high-tech companies, including sectors that are well-positioned to take advantage of domestic consumer spending during the coming years with private equity may play a more important role in outbound M&A, because a number of new domestic regulations and initiatives will support the source of capital for growing businesses.

(China Daily January 18, 2011)