New model of globalization
Chinahas become an "over-supplier" of capital and is more than willing to investabroad, Liang Xinjun, vice chairman and CEO of Fosun International, said in hiskeynote presentation at Macquarie Group's 8th Greater China Conference in Hong Kong.
The Chineseinvestment conglomerate, which bought French vacation resorts operator in 2015, has invested US$11billion overseas over the past eight years.
Liangcautioned that outbound Chinese investors should not simply pursue deals based onprice comparisons. "I think as a Chinese company, if you just want to buy somecheaper assets or equities in the overseas market, it will be very dangerous,"Liang said. "For those in the local markets, they don't think it's cheap. Youthink it's cheap only because you buy too expensive in China."
Instead,Fosun will only focus on overseas acquisition opportunities where the target companiesare leadership brands in their own industries and could play to China's increasingconsumer heft, said Liang. "Then, we would bring them to China and promotetheir growth here. If we can't promote their growth in China immediately, say, inthe next six months, we would never do the transaction," he added.
Fosunwill focus on what he termed B2F, or business to family, and invest in wealth, healthand happiness segments, where demand is supported by the growing numbers of middle-classfamilies in China and around the world.
In addition,the chief executive suggests that Hong Kong's stock market, where of companies is probably "thecheapest" globally, should provide plenty of M&A opportunities.
Thatsaid, Fosun might cut back on its acquisitions, as it tries to focus on organicgrowth from this year on, according to Liang.
Thisorganic growth comes about by building the ecosystems for each business line. Takingits tourism business for example, it has invested not just in Europe's Club Méd,but also in Canadian entertainment firm Cirque du Soleil, U.K. reservations firmThomas Cook and souvenir retailer Shanghai Yuyuan Tourist Mart. It is also lookingto acquire some food-related and cruise businesses to create more synergies withinits tourism platform, Liang said.
A more positive tone
Morebroadly, China's growth is expected to continue to decelerate, but in a gradualway, according to Larry Hu, head of Greater China economics at Macquarie Group.
"Thisyear, China is in the middle of the political transition period, thus policy makerswill try their best to maintain economic and social stability," Hu said, addingthat the recovery of the property sector and the softer approach on deflation willalso cushion the Chinese economy from a hard landing.
The economistforecasts that China will grow at 6.7% GDP in 2016, within the range of 6.5% to7% set by the Chinese government.
On thecurrency depreciationquestion, Hu expects the Chinese yuan to stay at 6.6 against the U.S. dollar, amore optimistic view than the market consensus of 7.
"Ourstudy on China's capital flow suggests that capital outflow pressure will be furthereased this year," he said. "In the past seven quarters, China experiencedan outflow of hot money. We estimate that 60% to 70% of the carry trade positionshave already unwound, so that we expect foreign exchange reserves to only drop byUS$300 billion in 2016, much lower than the US$500 billion last year."
Chineseauthorities will further tighten regulation of the country's fast-growing internetfinance industry, as part of a bigger effort to crack down fraud and ensure socialstability, according to Zeng Guang, secretary general of Shenzhen Internet FinanceAssociation.
In recentyears, China has witnessed an unprecedented boom in internet finance covering arange of financial services such as crowdfunding, peer-to-peer lending, and onlinemoney transfer and wealth management. A stringof real estate developers, including heavyweights Greenland Holding Group and DalianWanda Group, have branched into the sector by setting up their own internet financebusinesses.
"It'sa popular idea to have an internet finance branch, since it can boost the revenuesand EPS of a listed group and increase its market share," Zeng said in a paneldiscussion.
However,the loosely regulated new industry is hindered by a growing number of cases of fraudand flameouts. And the Chinese government is now determined to rein it in.
"Throughsome dialogue with the authorities, it seems that they are likely to promulgatenew regulation policies for the sector, after conducting some thorough investigationand making a blacklist to flag companies that are too risky," said Zeng.
"Followingthe upcoming regulatory storm, China's internet finance sector will definitely reshuffle.Most of the survivors should be those backed by large-scale enterprises and withstrong risk tolerance," Zeng added.