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Its Christmas all year round for China, India

November 12, 2010

China and India are both on a global shopping spree. The world is their oyster, they’ve got money to spend and well entrenched, branded first world companies to buy at unbelievable discounts. Its like Christmas all year round!

Outward M&A deals from China and India have risen significantly over the past few years with values of deals rising to never before seen levels. While energy and natural resources deals have ruled the roost, Indian and Chinese companies have made significant purchases in other sectors as well – most recently, India’s Bharti Airtel bought most of Kuwait Telecom’s African assets for US$9 billion, while China’s Zhejiang Geely Holding Co. agreed to buy Volvo Cars from Ford for US$1.8 billion in March. Going into 2011, outward M&A deals from China and India are only expected to accelerate.

While historically, top dogs have had a far bigger share of the global investment market – Britain and America peaked with a share of about 45 and 50 percent, in 1914 and 1967 respectively (see pic). Chinese firms now own 6 percent of global investment in international business, while India holds less, analysts see this percentage rising fast over the coming years.

In reclaiming ownership of half the world’s trade, a leading New York-based think tank the Conference Board has said China and India will account for half the world’s economic growth in the next 10 years. While the world economy (under the baseline scenario) is expected to grow at 4.4 percent annually over the 2010-20 decade, China will account for 1.7 percentage points of that growth, India 0.6 percentage point and other developing economies will account for another 1.1 percentage points. Emerging economies as a whole will contribute 3.4 percentage points to annual global growth, with around 1 percentage point coming from the developed world.

The Conference Board also forecasts that India’s share of world output, estimated at 5.3 percent in 2010, will rise to 8 percent by 2020 (in purchasing power parity terms)—it was 4 percent in 2000. China’s share of global output is expected to increase from the current 16.3 percent to 24 percent over the same period.

Interestingly, India’s growth is expected to outpace that of China in the second half of the decade. The think tank predicts India’s gross domestic product (GDP) growth at an annual rate of 8.3 percent over 2010-15, while pegging China’s GDP growth rate at 9.2 percent over the period. Its forecast for 2015-20, however, puts India’s GDP growth rate at 9.1 percent per annum, compared with China’s 7.9 percent. In the short-term, Indian growth is expected to accelerate in 2011 to 8.4 percent from 7.5 percent this calendar year. That’s in contrast to most other countries, including China, which are expected to see growth rates decline from their current year’s levels.

While Indian and Chinese firms are going global for the same reasons – to acquire raw materials, get technical know-how and gain access to foreign markets. Both are perceived differently internationally. While Chinese firms are accused of spreading communist ideals in capitalist worlds and viewed with much suspicion over domestic security issues, Indian firms are viewed as taking jobs and wealth from the locals. Until these trust issues are settled internationally, M&A from China and India will always be viewed with some hostility.

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