52 Business The EconomistFebruary 6th 2021
2 denshareholder value.DaimlerTruck is
thelastoftheworld’sbiggestlorry-makers
todoso.Sweden’sVolvosplitapartin1999.
Volkswagenspunoffa 10%stakeinitslorry
divisionin 2019 andmaygofurther.Bern-
stein, a broker, reckons Daimler Truck,
whichdeliveredaround500,000commer-
cialvehiclesin2019,morethananyrival,
could be worth €35bn ($42bn). That is
aroundhalfof theundividedcompany’s
current market capitalisation. MrKalle-
niushopesthatthecarbusinesswillalso
“significantlyre-rate”.
Thecardivisionneedsallthehelpit can
get.Operatingprofitsof $6.6bnin 2020
comfortablybeatanalysts’expectationsin
ayearblightedbythepandemic.Itshas
plansforanimpressiverangeofelectricve-hiclesandisoncoursetocutcostsby20%.
Butthecarindustryischanging.Teslaand
othernewcomerswithoutthelegacyofthe
internalcombustionenginewillmakethe
businessevermorecompetitive.
Lorriesarea differentmatter.Yes,the
challengesofelectrificationandself-driv-
ingremain.Teslaand otherstartupsare
snapping at the incumbents’ exhaust
pipes.Butthebigthreehavea tightgrip.
Bernsteinreckonstheycontrol75%ofthe
marketinimportantregions,asidefrom
China.MartinDaum,currentchairmanof
DaimlerTruck,saysthatbygoingitalone
hisbusinesswillbemorenimblein“shap-
ingitsowndestiny”.Hecanbuildonanil-
lustriouslegacy.In 1896 GottliebDaimler
alsoconstructedtheworld’sfirstlorry.^7F
ew lifestories are as soap-operatic as
Lai Xiaomin’s. The fallen state financier
dallied with more than 100 mistresses, ac-
cording to Chinese media. He was subse-
quently caught with three tonnes of cash in
one of his dozens of homes. The sheer scale
of his thievery—1.8bn yuan ($279m) in
kickbacks, the largest bribery case since
the founding of the People’s Republic of
China in 1949—justified the death penalty,
a judge opined. In a tragic denouement, Mr
Lai was executed on January 29th.
The moneyman’s most serious of-
fense—and the one that ultimately cost
him everything—may have been some-
thing else. Under Mr Lai’s control, Huarong
Asset Management, a state-run financial
group, became the lender of last resort to
China’s riskiest corporate borrowers.
When state banks said “no” to loans, Hua-
rong said “no problem”. Its lending helped
private conglomerates get around capital
controls and scoop up assets overseas. This
enabled some of them to enlarge their bal-
ance-sheets—occasionally to breaking
point. These strains put the broader finan-
cial system at risk. And that perturbed the
communist regime’s paramount leader, Xi
Jinping, who prizes stability—including
the financial sort—above all else.
The latest example came within hours
of Mr Lai’s execution. hna Group, a sprawl-
ing conglomerate with interests in air-
lines, finance, logistics, property, tourism
and much else besides, said that its credi-
tors had applied to a local court to initiate
bankruptcy and restructuring proceed-
ings. Huarong was among the groups seek-ing to claw back lost loans from the bank-
rupt concern.
hna became known for amassing more
than $80bn in debts and large stakes in Hil-
ton, a large American hotel operator, and
Deutsche Bank. But in recent years it often
found itself short of cash. In 2019 it was in
effect taken over by a state-backed manage-
ment team, installed to stop the rot infect-
ing the rest of the financial system. To
make matters worse, disclosures made
public on January 30th by hna’s listed un-
its, such as Hainan Airlines Holding, re-
vealed that an internal investigation had
found that some existing shareholders and
associates had misused around $10bn of
company money.
hna’s demise, like Mr Lai’s, marks the
end of an era for China Inc’s overseas ambi-
tions. The conglomerate’s rise to promi-
nence began in 2015, when it paid $7.6bn
for Avalon, an Irish aircraft-leasing busi-
ness. Such transactions fuelled a boom in
outbound Chinese mergers and acquisi-
tions. In 2016 Chinese firms splurged
$218bn on foreign deals, more than twice as
much as the year before, according to Dea-
logic, a data-provider.
Some purchases looked strategically
sound—for instance ChemChina’s $43bn
acquisition of Syngenta, a Swiss chemicals
firm. Less disciplined buyers picked up tro-
phy assets, such as the Waldorf Astoria ho-
tel in New York (bought by Anbang, which
started out in insurance) and Club Med
(purchased by Fosun, another unwieldy
holding company).
The globetrotting bonanza was short-lived (see chart). By 2018 Chinese authori-
ties had grown wary of the domestic finan-
cial repercussions of reckless overseas ad-
ventures. At the same time, officials in
America and Europe began to fret about the
national-security implications of some
Chinese investments.
In April 2018 Mr Lai was detained by the
Chinese authorities. Three months later
hna’s co-chairman, Wang Jian, fell to his
death in the French countryside. The inci-
dent was deemed an accident by local po-
lice. After that his group began to sell as-
sets. Earlier that year the chairman of cefc
Energy, a conglomerate with interests in oil
and finance and another of Huarong’s cli-
ents, was also detained, after attempting to
buy a $9bn stake in Rosneft, Russia’s state-
controlled oil giant. Chinese regulators
were forced to take over Anbang. After
more than two years they are still trying to
offload its blingy assets, many of which
have lost their sheen.
Not all of the era’s acquisitions were
duds. Volvo, an iconic Swedish marque,
seems to have thrived under Geely, a Chi-
nese carmaking giant which bought it in- In 2016 Midea, a white-goods manu-
facturer, bought Kuka, a German robot-
maker, for $5bn and absorbed its valuable
know-how. ChemChina appears to be a de-
cent custodian of Syngenta. On February
2nd Alibaba reported 37% year-on-year
growth in revenues for its international re-
tail business; this, China’s e-commerce ti-
tan said, was mainly thanks to the strong
performance of Lazada, a Singapore-based
online-shopping platform it snapped up
five years ago, and of Trendyol, a Turkish
retail group in which it purchased a large
stake in 2018.
These quiet success stories are, how-
ever, overshadowed by spectacular failures
like that of hna. They may be the last win-
ners for a while, at least in the West, where
governments and the public view Mr Xi’s
unconcealed authoritarianism with grow-
ing anxiety. In 2020 Chinese firms spent
just $32bn on foreign acquisitions, the low-
est figure since 2007.^7
HONG KONG
China is cleaning up the mess caused by its overseas acquisition spreeChinese firms abroadToo close to the sun
Trips down memory lane
China,outboundmergers&acquisitionsSource:Dealogic *ToFebruary3rd1,0008006004002000250200150100500
2005 10 15 21*Value, $bn Number of deals