After Anbang Takeover, China’s Deal Money, Already Ebbing, Could Slow Further

China’s global deal making was already slowing down. Beijing’s takeover of one of the country’s biggest spenders threatens to bring it to a near stop.

The Chinese government’s seizure of Anbang Insurance Group on Friday has regulators in the United States and elsewhere struggling to figure out what that means to the properties the company owns around the world. It is also raising questions about Beijing’s deep role in the Chinese economy and its sway over private companies — especially those that own or run big businesses abroad.

In Washington, the Anbang takeover has galvanized lawmakers and Trump administration officials who have called for the United States to take a tougher look at Chinese purchases of American companies. Officials in Canada and Europe are also watching closely to see how the takeover affects Anbang’s businesses in their backyard.

“If it can happen to Anbang, it can happen to any number of Chinese firms looking to gain a share of our critical industries, infrastructure and technologies,” said Robert Pittenger, a Republican representative from North Carolina.

That scrutiny could test what has long been a ready source of money for companies in the United States and elsewhere.

For years, China was an enthusiastic and big buyer of hotels and real estate, entertainment companies and logistic companies in the United States, rewarding those who put the deals together. But those warm business ties between China and the United States are cooling.

The White House has labeled China a strategic rival. Lawmakers on Capitol Hill are pushing through a bill that would expand regulatory inquiries into Chinese deals. And Wall Street has put the brakes on financing some of China’s deal-making amid accusations that they failed to properly vet the buyers.

The Trump administration has expressed concerns about investments by Chinese companies in United States firms in areas where Beijing wants to be dominant, like artificial intelligence and self-driving cars. The Anbang takeover will likely add to that trepidation.

“Regulators will naturally be somewhat concerned by the reality that often there is an asymmetry of information about the Chinese firms operating internationally,” said Jeremy Stevens, an economist for Standard Bank Group in Beijing. “This event further underlines this truth,” he added.

Anbang has said it will carry on business as usual. “We remain fully committed to our overseas subsidiaries, business and investments,” it said in a statement on Friday.

But already, Chinese companies aren’t buying — or sealing deals — like they once were.

Newly announced Chinese acquisitions in the United States in 2017 fell to $8.7 billion, one-tenth the transaction value of acquisitions in 2016. It marks the lowest level in six years, according to data from Rhodium Group, which tracks Chinese investments abroad.

Some of the drop in deals last year had to do with China’s skepticism of its large private conglomerates and its crackdown on what it called irrational spending overseas on trophy assets like the Waldorf Astoria in Manhattan, which Anbang bought in late 2014 for nearly $2 billion. High-flying giants like Anbang and its peers Dalian Wanda and HNA Group, which have large amounts of debt, have started shedding assets overseas.

Some of the slowdown comes from American concerns as well.

Just as the Chinese government announced its plans to take over Anbang last week, the American semiconductor testing company Xcerra Corporation announced that its $580 million sale to Hubei Xinyan, an investment fund backed by the Chinese state, had been blocked by American officials. It was the latest high-tech China deal blocked by Washington amid concerns that China could gain access to cutting-edge technology.

A week before that, the Securities and Exchange Commission blocked a $20 million deal by a Chinese group to buy the Chicago Stock Exchange. On the campaign trail, Donald J. Trump criticized the deal, using it as an opportunity to accuse China of taking American jobs and wealth.

The Committee on Foreign Investment, the government committee that reviews foreign purchases of American companies in the United States, could become an even tougher hurdle.

Mr. Pittenger, the congressman, is co-sponsoring a bill that would broaden the scope of the committee, known as Cfius. While the panel reviews deals for national security issues, Mr. Pittenger and others want it to consider economic and other factors in deciding whether to approve deals.

“This cannot go unnoticed by those tasked to uphold our national security through Cfius and export controls,” Mr. Pittenger said, referring to China’s takeover of Anbang last week.

With the government takeover, Anbang could be under pressure to begin to sell its many holdings overseas. These include hotels across the United States, a large stake in a South Korean bank, a Dutch insurance company and a South Korean insurance company.

“Investors in companies outside China in which Anbang, Wanda or HNA own a stake of less than 100 percent should expect that the stake held by the Chinese investor will be put on the market over 2018,” said Gordon Orr, the former Asia chairman at global management consulting firm McKinsey & Company. These could “be pushed through very rapidly,” Mr. Orr added.

Dutch regulators are reviewing the potential impact on Vivat, a Dutch insurance company that Anbang bought in 2015. On Friday Vivat said that the takeover would not affect Vivat or its clients. But it also added that it is an independent entity and subject to Dutch laws and regulations and was being monitored by Dutch supervisory authorities.

De Nederlandsche Bank and the Dutch Authority for the Financial Markets, the two authorities that monitor Vivat, did not respond to a request for comment.

In Canada, officials are taking a close look at a nursing home chain Anbang owns in British Columbia. In 2016, Anbang said it would purchase Retirement Concepts, a chain of more than 20 Canadian nursing homes. Retirement Concepts is the province’s largest nursing home chain and accounts for one in every 10 nursing home beds that aren’t directly run by local health authorities, according to the Hospital Employees’ Union of British Columbia.

The Canadian government “has exclusive jurisdiction for matters of international trade and approved the purchase by Anbang in spite of significant concerns in B.C.,” said Adrian Dix, the health minister in British Columbia, in an emailed statement. “We believe that communication with patients, families and the general public on these types of matters should be done more transparently.”

Government officials are concerned that Anbang, under government control, will be forced to sell the homes in a way that could put retirees at risk.

“The care and well-being of patients must be at the center of our efforts and not the operator,” Mr. Dix said in the statement.

Content originally published on https://www.nytimes.com/2018/02/26/business/china-deals-anbang-takeover.html by ALEXANDRA STEVENSON