Should we fear or hope for Chinese acquisitions? Evidence from Italy

In 2016, Chinese outward FDI exceeded inward investment flows, making the country a net exporter of capital, like the large advanced economies. The majority of Chinese investments are M&As, with the aim to acquire strategic assets (advanced technology and know-how) and access to markets (brands). The rapid growth of Chinese direct investments has raised many concerns among the advanced economies. The most important one is the fear that these investments will not produce the positive effects on the host economy typically associated with FDI from advanced countries, but a one-sided transfer of technology and know-how from acquired European firms to China. However, there does not seem to be any evidence so far of a negative impact of Chinese investors on the acquired companies and the host economies. In particular, accurate studies on the pre and post-acquisition behaviour of European companies acquired by Chinese investors are still lacking. This research intends to offer a contribution in this direction by providing new and detailed data on Chinese investments in Italy and by trying a first and tentative assessment of the performance of Italian companies recently acquired or controlled by Chinese investors. To this purpose, we have built an original database gathering detailed company information on more than 7.000 Italian companies with Chinese shareholders. Second, we have studied the pre- and post- acquisition performance of 198 Italian target firms. Overall the results appear quite positive. Roughly 2/3 of the acquired companies have seen an increase in turnover, total assets, and shareholder’s funds and 50% has had an increase in fixed assets. Revenues show a decrease soon after the acquisition followed by a steady growth starting from the third year. Employment and profitability results appear more balanced. The number of companies which has registered an increase in employment is roughly similar to the number of those that have experienced a decline, but there is some evidence that Chinese shareholders prefer to avoid layoffs even in front of severe reductions in turnover. This attitude is reflected in profitability, which especially in the first years soon after the acquisition tend to decrease, followed by a recovery in the following years. Overall, the analysis suggest a long term orientation of Chinese acquirers which deserves further investigation.