Chinese acquirers made little to no value in 60% of their outbound investments over the past decade, according to a recent report by McKinsey China. Further, as a response to the resource insecurity China faced from 1998 to 2008, with resource import prices increasing by 18% annually, Chinese firms sought out new resource investments, leading to 84% of China’s outbound resource investments – 89% in terms of deal value – losing or creating no value for their acquirers.
Natural resource deals made up 43% of China’s outbound M&A deals over the past decade, amounting to 217 deals and 56% of all outbound investment value. Unluckily for these acquirers, commodity prices peaked around the same time as the financial crisis of 2007–2008, and as 80% of these natural resource deals happened prior to the peak, these companies have lost an average of 9% on their investments. The risks were worse for larger resource deals, with US$2.000 billion (C$2.560 billion) plus deals succeeding just 9% of the time, while deals below that threshold succeeded 13% of the time.
Within specific sectors of the resource industry, only the construction and building sector saw a positive financial return on investment, at just 1%, a paltry return considering construction and building deals only totalled US$0.8 billion, or 0.3% of total Chinese outbound resource investment value. The biggest losses as a percentage were in the chemical sector, which lost 22% of its invested value of US$2.7 billion, and comprised 1.1% of the outbound resource investment mix. Oil and gas, with its US$148.4 billion invested, was the largest sector at 61.2% of the resource investment mix, but lost 8% on its investments over the decade.