Negotiating With Chinese Investors

Chinese companies are increasingly investing in companies overseas. But to reach advantageous agreements with Chinese investors, Western managers need to prepare themselves for differences in negotiating style.

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In 2015, the Chinese economy passed a significant milestone. After years of proactively soliciting overseas investment to build large-scale manufacturing and generate jobs, China saw its outbound investments surpass inbound investments for the first time. As the Chinese economy becomes more advanced, the focus of Chinese overseas investment has entered a new phase, with a change in the target companies of interest. Recognizing this change is important for Western executives seeking to negotiate effectively with direct investors from China.

To negotiate effectively with Chinese investors, corporate managers need to understand three things: (1) the environment in which Chinese companies operate, (2) their interests and priorities, and (3) the strategies Chinese investors use at the negotiating table. In developing our perspective, we studied 15 years of accounts of Chinese outbound investments, as reported by the Financial Times, The Wall Street Journal, The New York Times, Reuters, The Economist, Bloomberg, and the BBC, as well as by leading Chinese media outlets such as Sina, China Daily, Xinhua News Agency, and Caijing. Across hundreds of investments, we focused on 55 highly visible transactions, most with a reported value of at least $100 million. They varied across major industries and countries and involved both state-owned enterprises and private companies.

A Shift in Interests

In recent years, China has been transitioning from rapid growth driven by infrastructure projects and mass manufacturing to more moderate growth based on the consumer economy and sustainable manufacturing. The shift is particularly visible in cases where Chinese companies are investing overseas to acquire the capability to develop new technologies, expertise in supporting sustainable development, well-known brands, or processes to manufacture quality consumer goods.

The food industry provides a vivid example. Increasingly, Chinese consumers with middle or high incomes have taken a keen interest in quality food products from outside China. In addition to their desire for new products, these consumers have a belief that food sourced from developed economies is produced under stricter safety regulations than local food products. In response, Chinese companies are snapping up foreign food companies. Perhaps the best-known investment has been the 2013 acquisition by Shuanghui International Holdings Ltd. (now called WH Group Ltd.) of Smithfield Foods Inc., a large pork processor and hog producer based in Smithfield, Virginia.


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Comments (2)
Lynn Etheredge
In 10 hi-tech, high-growth industries that China is targeting in Made In China 2025, plus agriculture and artificial intelligence, China's negotiating aims are to advance global leadership. China's rapid-learning ideas for how to achieve these aims have industry-specific strategies, including acquiring and/or collaborating with foreign companies. See the latest Chinese announcements about world leadership in electric cars, with collaborations by General Motors, Ford & Nissan-Renault, as a model for what to anticipate. (For interested readers, see "China's New Rapid-Learning Economics: A Wake-up Call" at: )  Lynn Etheredge
Peter Fasan
While it's fairly straightforward to not only understand the Chinese business environment, but also to understand how and in which direction it is evolving with time, and even the why's, as in teh drivers, of this evolution, the risk problem will probably be with Chinese investors struggling to understand the uncertainties and emergent issues in many of the markets they try to penetrate and operate in. Be it the US with all the changes in that environment since Trump has been elected, up to and including the impact of US led sanctios on some of their traditional trading partners, to Europe, with the sudden instability resulting from Brexit, and the economic ups and downs of other member states, to Africa and the Middle East, with their unstable governments and interminable conflicts. It seems the only stability they can actually  count on (relatively speaking) are the APAC region  and, albeit to a lesser extent, the LATAM region...

The Chinese, will probably usually have far more reason to be nervous than those who are seeking their investment, and or this reason they may specify and demand unusual protective measures for their investment.