China – the must-visit destination for the world’s leaders, what about deal makers?

In the last couple of weeks China has been courted by three separate suitors, Nicolas Sarkozy, Barack Obama and now David Cameron. Granted in the case of the French, China’s Premier Wen Jiabao went to them, but both the US President and the British Premier have gone to China with significant numbers of top CEOs in tow with one of the primary purposes being to increase business activities between China and their two countries, respectively.

In M&A terms though it’s going to take more than niceties between leaders to increase the flow of M&A activity between China and not just these three countries but the rest of the world as well.

Since 2005 there has been over $800bn worth of M&A deals where Chinese companies have been the target in the deal. Chinese acquirors have accounted for the vast majority of these deals with over $500bn worth in effect being Chinese domestic deals.

When you look at which of its three courting countries has been the most successful in doing inward M&A into China then it is the US. The US has managed to achieve some 1,151 deals at a value of $48.8bn, the UK has managed 219 deals totaling $13.8bn and France has managed 66 deals totaling $2.9bn. Obviously muddying the water somewhat are the deals done by a foreign investor who has set up a Hong Kong, Bermuda or Cayman Islands-based company to make the acquisition on behalf of them; in these cases it is more difficult to ascertain the true nationality of the company behind the deal.

It’s not that foreign entities don’t want to look to China for acquisition opportunities and the size and strength of the Chinese economy is certainly attractive in many ways for companies who might wish to capitalise upon opportunities there.

The issue comes down to the difficulties companies face when trying to do deals in the region. These range from a lack of cultural understanding of China, regulatory issues in terms of approval needed for foreign entities to own equity in Chinese companies, identifying the right target companies and then being able to access good quality information on those companies.

Nice, friendly meetings between politicians won’t help resolve these problems quickly but you would have to hope that in being accompanied by business leaders and CEOs some of these issues may at least be discussed, even if informally. If not then it may still be some time before we see US, UK and French companies, amongst others, becoming more acquisitive in China’s dragon economy.