China’s Gordian Knot of Geopolitics: Regional Expansion or Global Ambitions?

Hong Kong harbor
  • The Belt and Road Initiative would appear to be creating favorable conditions for Chinese companies while fueling neighboring countries' dependency on economic ties with China.
  • Beijing is using the BRI not only for economic, but also political and ideological goals, one of them being an export of its ‘digital authoritarianism’ model. However, its geopolitical ambitions are facing several obstacles.
  • The Asian Infrastructure Investment Bank cannot offer a sustainable alternative to global institutions, but will still be able to turn into an influential regional lender.

Sino-American relations at present could hardly be called ‘friendly.’ Though Donald Trump and Xi Jinping shared a ‘beautiful chocolate cake’ and developed ‘great chemistry’ during their summit at Mar-a-Lago in early 2017, since then, Beijing and Washington have been sliding toward confrontation. Their tensions started with disputes over technology and trade but quickly moved beyond economic issues to show their geopolitical lining.

Leaving the issues of politically inspired trade wars, questions of Hong Kong, Taiwan, and the South China Sea aside, let’s have a look at the M&A statistics. The number of completed M&A deals with the participation of companies from mainland China peaked in 2016 and has been steadily declining since then. Surely then, the outbound M&A market must be heavily influenced by geopolitical processes and uncertainties. Though Beijing is being careful with international politics, in an economic scene it is actively investing in its regional super-project, namely the ‘Belt and Road’ Initiative (BRI). Following this, Chinese companies are increasing their investment in Southeast Asia, the Middle East, as well as Europe, Africa, and South America.

Will China find ways to increase its influence on global markets? Is the BRI going to be successful or will it meet with the opposition of regional actors? The M&A Community touched these issues during the ‘Geopolitics: How the Rise of China Changes the M&A Game’ webinar. Though the level of uncertainty remains high, there are several key trends to follow.

One Belt and Road to Rule them all

The Belt and Road Initiative (BRI) is the multi-billion-dollar flagship project of Chinese President Xi Jinping who aims at reshaping regional (and after that, global) trade networks, transport connections, as well as political ties. Since its launch, the BRI has remained surrounded by controversies and discussions. Now, it is facing major challenges, including the Covid-19 pandemic.

‘As China boomed, it didn’t boom equally at the same time. Certain regions, specifically in the East of China, developed more rapidly than those in the West of China. This could have impacted not only the income gap and the wealth gap but also educational opportunities, healthcare, transportation, etc. The Belt and Road Initiative, in one sense, is an attempt to make China’s western regions more integrated into global supply chains,’ explains Klisman Murati, founder and CEO of the Pareto Economics.

Though supporters usually point out to the BRI’s capacities to link countries for mutual gain, critics typically underscore, implicitly or explicitly, that Beijing has too high a degree of control over the initiative. There are also several things impacting the non-Chinese M&A community, adds Murati, namely the ‘procurement fog.’ ‘The actual procurement strategy and its tender cycles aren’t very transparent to the wider investment community,’ our panelist says.

For instance, according to CSIS data, more than 60% of Chinese-funded projects have been awarded to Chinese firms, compared to only 30% in BRI projects funded by non-Chinese financial institutions. Moreover, Klisman stresses, future development projects are less likely to materialize due to the inflated debt to GDP ratio incurred by nations due to unsustainable borrowing for BRI projects. Ultimately, this would slow down national growth and opportunities for non-Chinese firms to win tenders.

Digital Authoritarianism for Export

The BRI also pursues China’s national security goals, says Reva Goujon, Managing Director for Intelligence at Martin+Crumpton Group (MCG). ‘As China has expanded economically, its supply roots have extended further out to serve big export markets.’

Hence, she adds, Beijing will try to leverage the BRI to build redundancy into supply routes, spread the use of the yuan, and to use economic enticements to temper territorial disputes with its neighbors.  However, Goujon points out, China is already learning the limits of this strategy — with countries like India, Vietnam, and the Philippines.

There is also a big political, social, and ideological component to the BRI. As exogenous pressure is rising on China, it becomes Beijing’s imperative to lock down its periphery. Here, it is not only about developments in Hong Kong, Shenzhen, and Tibet where the central government is tightening its control.

‘China’s tech prowess and political ideology of centralized control offer a model of digital authoritarianism to other countries who are tired of hearing Western human rights lectures.’ Despite the reputational risks and rising geopolitical tensions, she says, investors are still showing a great appetite for Chinese projects. 

AIIB: Beijing’s allies are welcomed

Another Chinese initiative proposing an alternative to Western-dominated business structures is the Asian Infrastructure Investment Bank (AIIB). Created in 2015, it promised a quick approval process, a step back from loan conditionality as well as more control for growing economies often unheard of in global credit organizations like the World Bank. Washington’s criticism that the AIIB would become a tool of Beijing’s foreign policy didn’t stop a number of traditional U.S. allies from joining the bank, including Australia, South Korea, the UK, and Germany.

However, the AIIB will hardly become an alternative to global financial institutions like the World Bank, believes Shehzad Qazi, Managing Director at China Beige Book International. ‘Perhaps, it is a vehicle to provide loans to various projects under the Belt and Road Initiative, and to other countries allied with China. But that’s its limit. There is no global buying into it,’ he stresses.

Currently, on the background of the Covid-19 pandemic, the AIIB has plenty of opportunities to prove itself as a vital regional lender, CSIS analysts point out. ‘It has acquired several new borrowers, expanded its lending instruments, and has already lent several billion dollars in emergency funding. However, for the institution to establish itself as a major player in the crowded field of multilateral lending, it also needs to ensure this new lending does not increase the credit risk of its portfolio as debt distress heightens in the wake of the pandemic,’ as the researchers from the CSIS’ Reconnecting Asia project put it.

The experts also believe that the AIIB needs to guarantee that its new crediting activities would match its capacities. Not to mention the fact that skepticism is still growing about the possibility of the ties between the AIIB and Beijing being too close.

Other Insights

See More
Brazil
women in finance

Women in Finance: Strategy and opportunities in Brazil for 2022

There are more women in senior financial roles now that it is recognized that they get good results and in response to incentives for diversity...

See More
M&A

Mergers & Acquisitions and Antitrust Economy: Economic Synergies and Efficiency

One of the most relevant topics in corporate finance is the role of synergies in operations of mergers and acquisitions (M&A’s)....

See More
M&A
M&A

China M&A Trends Report FY 2021

Brought to you by the M&A Community in association with Mergermarket. Another record-breaking year should be cause for great optimism but a...

See More
Iberia mna
M&A

Iberia M&A Trends Report FY 2021

Brought to you by the M&A Community in association with MergerMarket.  Industrials and chemicals lead the way in a post-Covid surge...

See More
LATAM M&A
M&A

LatAm M&A Trends Report FY 2021

Brought to you by the M&A Community in association with MergerMarket.  The devastating impact of Covid-19 was succeeded by a...

See More
Dach M&A
M&A

DACH M&A Trends Report FY 2021

Brought to you by the M&A Community in association with Mergermarket.  Europe’s model region is still enjoying a post-Covid boom, with...

See More
USA
china usa
M&A

How the Rise of China changes the M&A Game

While the M&A landscape has experienced significant short-term changes because of the COVID-19 pandemic, investors are very conscious that...

See More
Chile
Brazil China
M&A

Investment Opportunities And Successful Cases Between China And Latin America

Relations between China and Latin America have strengthened in recent years, with the COVID-19 pandemic as a turning point. Nearly $75 billion...

See More
Brazil
clean energy
Energy

According to an expert, clean energy is Brazil’s ace in the quest for foreign investments

Although we are going through challenging times with the water crisis and political and economic uncertainties, the Brazilian energy industry is...

See More
Brazil
M&A Community
Energy

Energy Investment Projections In Brazil

At an event organised by the M&A Community, participants emphasise that the water crisis and the political context are challenges, but they...

See More
Dach
M&A

DACH M&A Trends Report H1 2021

Brought to you by the M&A Community in association with Mergermarket.  Real estate, pharma, industrial and chemicals and technology...

See More
Latam
M&A

LatAm M&A Trends Report H1 2021

Brought to you by the M&A Community in association with Mergermarket.  Led by the financial services sector and big deals in energy...

See More
Iberia
M&A

Iberia M&A Trends Report H1 2021

Brought to you by the M&A Community in association with Mergermarket.  Rapidly expanding opportunities in energy, especially...

See More
China
M&A

China & Hong Kong M&A Trends Report H1 2021

Brought to you by the M&A Community in association with Mergermarket.  As both economies bounce back from Covid-19, infrastructure and...

See More
Brazil
IPO

Prospects for the M&A and IPO market in Brazil

Despite two very challenging years for the Brazilian economy and population, due to the consequences left by the COVID-19 pandemic, the M&A...

See More
USA
digital-USD
Digital currency

Webinar: Are Digital Currencies Disrupting Global Markets? Risks, Opportunities, And Outlook

Cryptocurrencies, once viewed as the province of nerds and dodgy financial transactions, are now becoming mainstream. More countries around the...

See More
Mexico
IPO
M&A

M&A Latam, Facts, Trends, & Insights For 2021

M&A activity is fast recovering from the impact of Covid-19 all round the world. This is especially evident in Latin America (LATAM) where,...

See More
USA
digital assets
Digital assets

Acquisition and Integration of Digital Assets

In the last 15 years more than 52% of US listed companies have disappeared, and while the average life of such a company in 1955 was 61 years,...

See More
Portugal
green energy
Energy

The Ins and Outs of Becoming a Player in Portugal’s Green Energy Market

Portugal has seen a rapid expansion of investment in renewable energy in recent years, especially in solar PV. There has been considerable...

See More
Brazil
spain
Infrastructure

Infrastructure Insiders Discuss Opportunities and Bottlenecks

Cleverson Aroeira (BNDES), Venilton Tadini (ABDIB), Elias de Souza (Deloitte) and Thiago Costa Monteiro Caldeira (PPI) untangled the sector and...

See More
Russia
M&A Agriculture
Agriculture

What’s Happening in the Agribusiness in Russia? An M&A Point of View

Crop production seems to be the most lucrative segment in Russian agriculture as the demand is substantially higher than the supply.

See More
USA
Health Tech M&A
Healthcare

Telemedicine is Changing the Healthcare Landscape: Expert Outlook 2021

With several new coronavirus strains circulating, it is hardly likely that the healthcare industry will soon escape from this period of...

See More
USA
M&A AI Tech
Tech

M&As in the AI Market: Tech and Deals Explained

The artificial intelligence (AI) industry survived its ‘winter’, in terms of limited hardware capacities, some time ago. Now, this sector seems...

See More
USA
Bruce Molloy
Tech

AI Industry: What Any Business Leader Should Know

Business leaders can understand what AI can do in straightforward ways, including the opportunities it creates, the problems it solves, and the...

See More
USA
Healthcare

The Post-pandemic Health Industry: Tech Is Poised to Play a Much Bigger Role

The next normal presents itself with emerging opportunities, challenges, and new health tech use cases in the US, and globally.

See More
Brazil
Sao Paulo, Brazil
M&A

Experts Show Optimism for the M&A Market in Brazil in 2021

Economic recovery in a Brazilian context will involve greater liquidity and an enormous structural change.

See More
Brazil
The National Congress of Brazil
M&A

The LGPD to Attract More Foreign Investment to Brazil

With the LGPD, the business environment will have more clarity about the regulations to be made a clearer perspective for foreign investors.

See More
New Normal
M&A

M&A: Getting Used to the ‘New Normal’ 

Political and geopolitical tensions worldwide may also hint at the events we might see in the nearest future. What are the main currents in the...

See More
Portugal
Oporto, Portugal
M&A

M&A in the North of Portugal: Tough Situation, Plenty of Opportunities

The outlook of the mergers and acquisitions landscape in the north of Portugal.

See More
Reva Goujon
M&A

‘Strategic Scenario Planning’: Reva Goujon — about resilient M&A Approach, US-China Rivalry, and Cyber Influence Ops 

How to design smart and resilient M&A strategies amidst global uncertainties?

See More
USA
Crossroads
M&A

Global Business Climate, Geopolitics, and M&A: Where we are at now 

Everyone, from small firms to large corporations, has to adapt to the new realities and find new ways to stay afloat.

See More
USA
Tech

‘AI Hype’ and M&A: Artificial Intelligence Strategies and Putting a Value on a Deal

How AI technologies can create value for different industries, and what to consider during any AI-related M&A transaction.

See More
Ignacio Tornero
M&A

China Goes Overseas: The Successes and Challenges of PRC in Latin America. An Interview with Ignacio Tornero

Digging deeper into the Chinese expansion in Latin America.

See More
USA
Tech

Tech, M&As and their Future: Reality and Expectations

From the valuation of AI assets to IoT, blockchain, and ESG (Environmental and Social Governance) in business.

See More
Portugal
Porto, Portugal
Legal

Legal Frameworks for Turbulent Times: Cases of Distressed Investments in Portugal

Are there ways to prevent the wave of insolvencies expected in 2021?

See More
USA
M&A

Geopolitics and M&A: Power Play in the Turbulent World. An Interview with Klisman Murati

How do geopolitics define the long-term strategies of states, and impact the economic actors?

See More
Portugal
M&A

Distressed Investments in Portugal: An Economic and Legal Outlook

The number of insolvencies in Portugal is rising and businesses are facing uncertainty in terms of future financing.

See More
USA
Investment

The US vs. China: How their Geopolitical Game is Affecting M&As

Beijing remains cautious in terms of restrictive measures against the US in response.

See More
Australia
M&A

Four Human Capital Factors to Consider during an M&A Deal

Without the proper management of human resources, the majority of M&A deals are bound to fail.

See More
Australia
M&A

Extracting Commercial Benefit from Data: Lessons for M&As

Data can be applied and bring value at various stages of the M&A process.

See More
Brazil
Legal

LGPD in Brazil: How the New Data Protection Law is impacting Businesses and Deals

Here are some useful hints and recommendations by experts in the field

See More
China
Investment

M&A Regulatory Updates in China and Abroad 

How can tightening regulations impact the M&A situation in the Asia-Pacific region?

See More
M&A

Global M&A: Is a Recovery in Sight?

The full impact of the coronavirus crisis has manifested itself in Q2 2020. Here’s a brief overview of the global M&A situation in Q&A.

See More
China
M&A

Trends That Are Defining Cross-Border M&A in China

The global M&A market is showing a strong decline: it has more than halved to $0.9T in the first half of 2020.

See More
USA
Investment

Paradigm Shift in Impact Investing: Trends to Influence Businesses in a Post-Pandemic World

While the world is living through turbulent times, businesses and investors cannot stand aside unaffected. To dive deep into the issues of...

See More
China
Energy

Global Energy Investments and M&A: A Quick Guide

The chaos this year on the oil market seems to have echoed into other energy sectors, leaving investors in a state of uncertainty. However, this...

See More
China
Energy

Investment Opportunities and Risks in the Global Energy Industry

2020 looks like being the biggest black swan event since WWII. The global pandemic has affected the mentality of investors all over the world....

See More
China
legal service
Legal

The Role of Legal Service Providers in Cross-Border M&A

In recent years, an increasing number of Chinese companies are seeking international expansion in response to the nation’s “Go Global” campaign....

See More
China
business mna
M&A

How to improve bid success rate in cross-border M&A

Initiated by iDeals and co-organized by several key players in the cross-border M&A industry such as KPMG, Eurasian, and GORG, the China-EU...

See More
China
mna community
Investment

M&A Community In-depth Interview: The Three Key Questions in China-EU M&A

Recently, iDeals hosted the M&A Community: China-EU Cross-border Best Practice Sharing event in Shanghai.

Speakers of this event

See More
UK

Klisman Murati

Geopolitician and Founder & CEO, Pareto Economics
See More
USA

Reva Goujon

Managing Director for Intelligence at Martin+Crumpton Group (MCG)
See More
USA

Shehzad Qazi

Managing Director at China Beige Book International

Upcoming Events

Get In Touch

Our team is happy to answer your questions. Fill out this form and we will get in touch with you.