Martin van Roekel, CEO of BDO shares his thoughts on the challenges and opportunities posed by the Chinese market.
If you’ve read the news recently then you’d be forgiven for thinking that China’s economic outlook isn’t looking too rosy. In Q3 2014 it was reported its economy grew at its slowest pace since the depths of the global financial crisis, with industrial overcapacity, rising debt levels, political tension and a slump in the property sector being cited as reasons for the slowdown. As a result, investors and businesses are now slightly cautious when looking to China for investment and growth.
However, that is by no means the full picture. To fully understand the challenges and opportunities that these developments present to professional services firms, we need to take a closer look at our clients’ activity, as well as the M&A landscape.
Despite its economic outlook, China remains a hotbed for M&A activity. We witnessed an unprecedented level of deal activity in the market in 2014: Q2 was a record for the biggest number of transactions in a single quarter. There were more than 300 transactions at a total value of $26.7bn – that’s an increase of almost 50% compared to this time last year. China’s M&A engine is certainly up and running and the introduction of MOFCOM’S simplified clearance procedures has undoubtedly played a key role in driving up its deal volumes.
The TMT sector has played a starring role in this M&A activity, with companies continuing to expand their operations into other sectors, such as mobile phone manufacturing, logistics, entertainment and mobile apps development. Although the spotlight has been on larger deals – such as Lenovo’s acquisition of IBM’s server business and Tencent’s stake in JD.com – deals have certainly not been limited to the larger players. In the first half of this year, there were 139 mid-market deals in this sector alone. Also active is the industrial & chemicals sector, with over 179 mid-market deals in the first half of this year. Of the 307 deals in China in Q3, 17% are global mid-market M&A deals, compared to less than 15% at the same time last year.
China undoubtedly continues to present a significant opportunity for our clients, but also for BDO. However, to be successful in delivering these services, an ability to deal with the nuances and complexities of local ways of working is essential. Doing business in China means you must have a clear understanding of the country’s unique etiquette and ceremonies. This can be quite overwhelming when you consider that China is made up of 23 provinces and 56 ethnic populations!
As a result of the country’s heightened deal activity, we in BDO have been able to accelerate our own growth and take advantage of the opportunities created by our clients’ global expansion. A few weeks ago, when we released our annual financial results, we announced that revenues in China were up 16%, leading to a CICPA ranking of 4, ahead of EY and KPMG. As for our clients, mergers remain an important source of growth for all our firms, and BDO Li Xin’s merger with part of PKF China has certainly strengthened our position as the market leader in serving state-owned enterprises.
Against this ever-evolving backdrop, I was delighted that last month’s BDO Biennial Conference was hosted in Shanghai, where over 400 partners from around the world came together to share their knowledge and expertise to help us reach our ambitious five year strategy. We are increasing our presence in the economies that we know are central to our clients’ growth strategies and it’s plain that China, and our strong, locally-owned and managed Chinese member firm, will play a central role in this for some time to come.
By Martin van Roekel, global CEO of BDO International