China’s Biggest Foreign Buy Could Set Pattern For Future

State-owned China National Chemical’s record $43 billion bid for Swiss agrochemical company Syngenta will be closely examined by a US government panel and other national regulators.

The deal, which would be the largest foreign acquisition ever made by a Chinese company, seems likely to pass its security review, but not on the terms proposed.

“The best bet is that the size of the deal shrinks,” says Derek Scissors, resident scholar at the American Enterprise Institute for Public Policy Research in Washington. “However, if China can pull this off, or something close, assets thought too expensive or otherwise challenging would then be in play.”

According to Scissors, the success of this deal could open the door to more large acquisitions by China of major global companies, in Europe as well as in the US. If the deal goes ahead, China’s global investment in 2016 will easily break $150 billion, he forecasts. The country’s outbound investment reached a record $112 billion in 2015.

ChemChina (as China National Chemical is also known) is only able to pursue Syngenta with government backing, Scissors says. This and other overseas purchases reflect China’s financial capacity, but they are also signs of weakness, he says. “Some money is leaving China to buy unique foreign assets like Syngenta,” Scissors says. “But some money is leaving just because opportunities are now better outside China than inside.”

Syngenta is the biggest seller of pesticides in North America. It is also a biotech company that conducts genetics research. The company’s website says Syngenta is “helping to improve global food security by enabling millions of farmers to make better use of available resources.”

Syngenta and ChemChina have said they plan to make a voluntary filing with the Committee on Foreign Investment in the United States, or CFIUS, the government panel that reviews foreign acquisitions to see if they pose potential harm to national security. House Agriculture Committee chairman Mike Conaway, a Texas Republican, has already said he will be closely monitoring the deal as it develops.

Although CFIUS, which comprises representatives of 16 US agencies, approves most of the deals it examines, it broke form in January when it blocked the $3.3 billion sale of the lighting division of Dutch company Philips to a group of Asian buyers, including Chinese companies. The reasons for the committee’s decision were not disclosed but could have been related to the fact that the Philips unit produces semiconductors, which are considered to be part of the US’s critical national infrastructure.

ChemChina and some other investors agreed in January to buy German group KraussMaffei, a rubber and plastics machine manufacturer, for $1 billion. “This is further proof of many Chinese companies’ quest to purchase ever-more-distinct capabilities and to establish an international presence,” says Howard Yu, a professor of strategic management and innovation at IMD business school in Lausanne, Switzerland.

Many local Germans are skeptical about the shift of ownership for KraussMaffei, Yu says. “They think the Dragon is at their doorstep, so to speak, and that China is taking over their business.” ChemChina will need to display a strong sense of goodwill and eagerness to collaborate, he says.