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Outbound deal activity from China totalled $30 billion last year against inflows of $23 billion. This was the first time that M&A spending exceeded inbound investment, and many deals were struck in the financial services and natural resource sectors, which Chinese investors consider to be key industries.

In July 2007, China Development Bank (CDB) acquired a 3.1 per cent stake in Barclays for £1.5 billion. The tie-up enabled Barclays to expand its business in Asia and also provided the firepower for the doomed bid for Dutch bank ABN Amro. Since then, CDB has built its stake in Britain’s third-largest bank with a further investment of £136 million in June this year.

There has also been a number of large mining deals, such as Chinalco’s stake in Rio Tinto. The state-owned Chinese aluminium giant teamed
up with Alcoa to buy a 12 per cent interest in the UK-listed mining group
for £7.1 billion.

On a smaller scale, M&A activity is slowly beginning to filter down into the mid-market, with transactions such as Zijin Mining’s acquisition of Commonwealth & British Minerals Limited, a gold mining company and a unit of Avocet Mining, for £28 million in June 2007.

Of course, UK companies are equally eager to expand internationally,
but doing deals in China is not without its risks, such as finding out who actually owns a Chinese asset.

Another hurdle is valuing a target, as there is a distinct process put
in place to prevent Chinese assets being sold at knock-down prices.

In addition, there are the approvals and permits needed on a local, provincial and central level that must be obtained to own and operate a business. Identifying these approvals requires in-depth due diligence and obtaining them can involve building key relationships – and no little amount of time.

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