Chinese Firms Opt for Insurance Against Foreign Deals Veto : Report
China witnessed a sharp increase in its overseas investment in 2016, with a record spending of $45.6 billion on acquiring foreign firms. The surge in the acquisition volume led to resistance from foreign countries, leading to the breakdown of some very prominent deals.
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Chinese firms are now increasingly targeted by foreign governments for their investment practices. In the past year, Chinese company Fujian Grand Chip Investment's attempt to buy German chip company Aixtron was vehemently opposed by the US government. The deal also failed to receive the approval of The Committee on Foreign Investment in the United States.
US regulators also objected to the $3 billion deal proposed by a Chinese consortium for the acquisition of lighting unit of Dutch company Philips. In the wake of such stern actions from western governments, Chinese companies are now opting for new insurance products, which may compensate Chinese groups for losses incurred from such failed deals.
According to Financial Times, several insurance group, under the lead of Aon, are now offering insurance products, which compensate for the "reverse break up" fee. The insurance product is likely to be in high demand as the upcoming Trump administration is expected to further tighten the scrutiny of Chinese companies.
It is reported that such insurance product was bought by a group of Chinese and Hong Kong companies last year. The consortium had extended a $3.6 billion bid for US printer firm Lexmark. Aon has claimed that this insurance product will help the Chinese companies in making more competitive bids for foreign companies.