Overseas Decision Makers Distrust SOEs in M&A Deals, Survey Shows

(Beijing) — China's state-owned enterprises (SOEs) are the least-trusted by foreign decision makers in overseas mergers and acquisition (M&A) deals, but the skepticism drops dramatically if the opinion leader has a better understanding of the country, a recent survey found.

More than half of the 1,500 overseas decision makers canvassed said they distrust SOEs due to shortcomings in governance and social responsibility, according to the report by consulting firm Brunswick. The respondents were from firms in the United States, the United Kingdom and Germany, the top target markets for Chinese buyers.

However, respondents who trust private companies outnumber those who don't.

But overseas business leaders were still under the impression that Chinese firms from all sectors underperform on transparency, ethical conduct, treatment of employees and environmental protection.

A good knowledge of China and how it does business has helped reshape Western executives' views, with 84% of respondents saying they had heard "a lot" about Chinese businesses and were in favor of Chinese firms, including SOEs. The proportion fell to only 31% among those respondents who knew "a little" or "nothing" about China.

Facing a cooling domestic economy, Chinese business leaders are looking to unlock new markets and revenue streams by reaching out internationally.

Outbound M&A deals from China reached a record $67.4 billion in 2015, growing by 21% from a year earlier, auditing firm PricewaterhouseCoopers found.

However, the M&A climate is becoming more uncertain as China's market economy status remains in limbo, following new investment restrictions put in place by Chinese regulators and amid concerns over the protectionist stance of U.S. President-elect Donald Trump.

China's Fujian Grand Chip Investment Fund dropped its bids to acquire German chipmaker Aixtron SE on Thursday after the U.S. blocked the deal on national security concerns.

Another widely discussed case, the China National Chemical Corp.'s takeover bid of U.S. agricultural giant Syngenta AG, has been delayed for further review.

These cases have mirrored the typical challenges that foreign companies and regulators harbor "distrust toward the motives of Chinese businesses", the survey said.

It suggested that a Chinese firm that seeks overseas acquisition deals "should begin the process of establishing a profile in that market at the earliest possible time".

Contact reporter Coco Feng (renkefeng@caixin.com)