‘Made in China 2025’ and China’s cross-border strategic M&As in OECD countries

ABSTRACT

This article focuses on the highly debated ‘Made in China 2025’ program and its effects on Chinese M&As in OECD countries. Difference-in-differences as well as difference-in-difference-in-differences statistical techniques are employed to calculate to what extent ‘Made in China 2025’ has shaped both sector composition and location choice of Chinese M&As in the OECD, and to estimate effects and limits of national policies on cross-border M&As. Based on statistical results we can argue that ‘Made in China 2025’ has induced a new ‘troika’ model, of which the significance is moderated by firm-specific characteristics, such as ownership structure, and the firm’s home country embeddedness level. However, while we observe location diversification of Chinese M&As in the OECD at the aggregate level, hosting countries’ FDI screening mechanisms have no significant impact on containing China’s M&As that target more sensitive sectors.

KEYWORDS:

• China
• cross-border M&A
• troika
• made in China 2025

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. The five tiers have been (I) endowment-driven industries, (II) resource-processing industries, (III) assembly-based industries, (IV) research and development (R&D)-driven industries, and (V) information technology (IT)-enabled industries.

2. Governmental promotion and institutional escapism are logically complementary to each other (Luo, Xue, and Han 2010). While China’s general OFDI regime has not been tailored perfectly to MIC2025 needs, MIC2025 might also crowd out the firms in ‘unsupported’ industries that have an incentive to shift their affected functional areas or business units from China to a potential target country. This might explain why Chinese authority decided to strengthen its domestic OFDI approval procedure since August 2017 to check ‘irrational’ outbound M&As.

3. Latvia and Lithuania are excluded as they were not yet the official OECD member countries by 2013.

4. We keep however the transactions whose details are not disclosed, thus may inflate the number of meaningful M&A deals.

5. It is worth noting that the MIC2025 total treatment effect on average differential change of the number of M&A deals in sensitive sectors remains positive and significant with p < 0.01. The insignificant tripe difference estimate only suggests that the assumed differentiated MIC2025 effect at dichotomous sector level is not apparent.

6. Within the first year of the launch of MIC2025, the number of Chinese real estate M&As targeting the OECD jumped from 8 to 23, generating a year-by-year growth rate of 288%.

7. The restricted OFDI projects include among others those investing in real estate, hotels, cinemas, entertainment, sports clubs, as well as the establishment of equity investment fund or investment platform without specific industrial projects overseas.

8. For example, in order to implement the Measures for the Administration of Overseas Investment of Enterprises, NDRC issued 15 supporting documents to collect more information about the true outbound investors and the nature of the OFDI projects.

Additional information

Funding

This work was supported by the Spanish Ministry of Economy, Industry and Competitiveness under Grant CSO2017-82921-P.

Notes on contributors

Yue Lin

Dr. Yue Lin holds a PhD in the socio-economy of development and undertook his graduate studies at the École des Hautes Études en Sciences Sociales (EHESS) in Paris. He is now a full-time Associate Professor at the Universidad Autónoma de Madrid and is attached to the Centro de Estuidos de Asia Oriental. His current research interests include, among others, China’s overseas investment and international trade. He has published in journals such as China Economic Review, China & World Economy, Journal of Chinese Economic and Business Studies.