HONG KONG--(BUSINESS WIRE)--An uncertain economic outlook in China and government policies that are still evolving in the country and overseas could put a damper on merger and acquisition (M&A) activity in 2017, according to an A.M. Best special report.
The Best’s Special Report, titled, “Chinese Mergers & Acquisitions Activity Continues Amid Evolving Regulatory and Policy Environment,” notes that M&A activity among insurance companies in China has been increasing in recent years, with a higher proportion of M&A deals taking place overseas, as Chinese buyers have sought to diversify their assets and expand their businesses internationally. In particular, companies in China have needed to strengthen their niche advantage or create new areas of expertise through strategic partnerships formed by outbound M&A as a result of the increasingly competitive domestic market.
With the expectation of further yuan depreciation, insurers have sought overseas assets, particularly real estate in mature markets while their purchasing power lasts. However, the CRC recently has imposed stricter controls on insurers’ investments, including the acquisition of overseas assets. China’s foreign currency reserve plunged significantly in the past 10 months, dropping by USD 69.1 billion to USD 3.05 trillion in November 2016, according to the People’s Bank of China. This eroding reserve trend, along with depreciation pressure on the yuan, could lead to tightening regulatory approval on insurers’ overseas acquisitions.
A.M. Best expects M&A activity in China to continue as a long-term trend and vital part of China’s economic development despite the various challenges, such as regulations, government policy and expertise. The CIRC says the current market-oriented reforms will continue, but it will impose a more rigidly structured regulatory system as it aims for greater transparency and prudent supervision of the industry’s rapid growth. Such a development would benefit the industry as it addresses the risks arising from M&A activity.
To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=257285.
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