Companies take mixed view on China

22 February 2012

BEIJING: Brand owners in Asia Pacific believe China offers a major source of opportunity, but are also concerned about a range of increasingly powerful competitors from the country, according to a report.

Bank of America Merrill Lynch, the finance group, surveyed 465 chief financial officers across the region, including executives from Australia, China, India, Japan and Singapore.

When assessing the business outlook, ratings were especially high for China, on an index score of 7.5 points, compared to the regional average of 5.9 points.

Rising competition from overseas was mentioned by 35% of contributors as being a challenge, and 76% agreed China would be the main source of such a trend, ahead of the US, Western Europe and Japan.

Just 34% of participants expected to engage in mergers and acquisitions this year, and a majority of this group stated they were more likely to purchase another firm rather than be taken over.

A similar proportion anticipated undertaking these deals in their home market. Otherwise, China was seen as the most attractive foreign destination, beating Japan, the US and India.

"China is rapidly growing and winning market share is critical," Matthew Koder, head of Asia-Pacific global corporate and investment banking at Bank of America Merrill Lynch, told the Wall Street Journal.

"Of course, there will continue to be acquisitions of natural resources, energy and consumer products overseas, but it surprised us that what companies really want to do is expand domestically."

Some 74% of CFOs in Asia Pacific reported that driving growth was the main motivation for mergers and acquisitions, in front of category consolidation on 39% and accessing new technology on 26%.

Among the wider problems identified by respondents were the dangers of a property asset bubble and rising inflation throughout much of the region.

Overall, around one third of companies also expect to increase their borrowings to support the expansion of their operations in 2012, the study added.

Data sourced from Wall Street Journal/Bloomberg; additional content by Warc staff