Shanghai was among the first cities in China to begin reforming state-owned businesses, and many of them have chosen to reform themselves by acquiring companies outside the country. Dozens of mergers and acquisitions have been finalized this year, with food companies leading the way.

 

China's fourth largest dairy company Bright Food got a head start , it has made 10 overseas acquisitions so far in only five years. It started internationalizing back in 2008, when the international financial crisis hit, and Bright was able to expand by taking advantage of the resulting lower resource prices.

 

Its first successful deal was completed in 2010, when the company bought 51% of New Zealand dairy operator Synlait for 58 million US dollars. It was a milestone for the company, and also for China . It was the first time an M&A deal by a Chinese company resulted in the foreign company being cleared to list on its local stock market.

 

"Our group's debt to asset ratio was increased temporarily during the overseas funding. But since we could list the company after the acquisition, it lowered our debt to asset ratio and eased the financial risk. The capital funding also enabled us to expand our overseas markets.", Pan Jianjun, the spokesman of Bright Food Group said.

 

Bright Food made a profit of more than 20 million New Zealand dollars in the first year. Before long the profits allowed Bright to invest in a milk powder processing plant as well, and bring another product to the Chinese market in 2011, which is the infant milk powder Pure Cantebury.

 

And by then, Bright was on a roll. In 2011, it also bought a 75% stake in Australia's Manassen Foods for 556 million US dollars. In 2012, it bought a 60% stake in UK-based Weetabix for nearly two billion US dollars, the largest-ever acquisition in the food industry by a Chinese company.

 

Other Bright overseas investments include Italian olive oil maker Salov, the Israeli food company Tnuva, and Australian dairy company Mundella Foods.

 

This is just one of at least a dozen cases of state-owned enterprises investing overseas this year. Others include the country's largest terminal operator, the Shanghai International Port Group winning an operation right of the Mediterranean Sea port of Haifa in Israel.

 

The Israeli government has granted a 25-year-concession to Shanghai Ports, with operations expected to start in 2021. All together SIPG will invest 600 million US dollars in the project, and says the port will then be able to handle 1.8 million containers a year. Shanghai Ports officils say that will be a sizable addition to European gateway terminal capacity.

 

"The current port, or the terminals cannot generate the level of efficiency and the volume of turnovers that the growing economy is expecting, so as Israeli is seeking actively to grow its capacity in terms of port handling, terminal handling, one of the very important thing they are doing right now is to privatize some of the port operation to international operators, which they expect to bring in certain level of competition into the industry, and improve overall efficiency of the whole operation.", Jeff Zhou, the GM from the investment and Development department of SIPG said.

 

The Deputy Director of Shanghai's State-Owned Capital Operation Research Institute Yang Jianwen says SOEs need to enhance their soft power when going overseas.

 

"During the investment process, companies also need to enhance their management capabilities and competence on the international market. Also, SOEs are accustomed to the market system under socialism. They need to change policies to adapt to the international market in terms of the standards, and market environment.", Yang Jianwen, the deputy director of State-Owned Captial Research Institution said.

 

Bright Food says this year, it met its target business revenue earlier than last year, and that the figure could reach 150 billion yuan by the time the final accounts are in.

 

The Shanghai State-owned Assets Supervision and Administration Commission says that Shanghai has done well with mixed ownership reforms during the past two years, but notes that next year will be a new start for the SOE Reforms, as it marks the beginning of the 13th five year plan.

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