China’s Express companies unfazed by outward FDI crackdown

The days of HNA Group acquiring a new airport entity every few months may be coming to an end as Chinese regulators begin enforcing stricter outbound investment rules; yet this does not seem to have China’s express companies worrying about their ability to continue expanding into international markets. As SF Express demonstrates, despite moving forward with capital-intensive plans to grow its freighter fleet, the company can in parallel, pursue an asset-light strategy as it expands into other markets.

Consequently, for regions far away from the company’s Shenzhen headquarters, like those in Europe and North America, SF will rely on partners for last-mile delivery, according to an interview with David Adams, chief executive officer of the international business unit of SF Express in the South China Morning Post. For nearby countries like Singapore and South Korea meanwhile, the company will invest in domestic service.

As for partners, earlier this year, SF Express and UPS established a jv in which the two companies agreed to use their respective assets and expertise to “collaborate to develop and provide international delivery services.”The venture (subject to regulatory approval) will initially focus on providing logistics services ex-China into the US, but will later expand to include other destinations. SF has not yet provided any clues to its European strategy.

But for now SF Express’ foray into international markets seems unaffected by the increased scrutiny on outward foreign direct investment. The same cannot be said however, for conglomerates like the HNA Group. In 2016, outward foreign direct invest from Chinese companies topped US $183 billion, fueled primarily by mega conglomerates like Anbang, HNA group and Wanda. These companies have acquired significant stakes in global hotels, airlines and movie theaters around the world—often at premiums beyond market valuations.

Since the beginning of 2017, Chinese regulators have begun pulling the brakes on these types blockbuster deals, based on fears that that many of the acquisitions have been financed by state banks, and could pose “systemic risk” to China’s banking system. Last month, China’s Banking Regulatory Commission asked domestic banks to evaluate their exposure to conglomerates pursuing overseas acquisitions. It is estimated that across its portfolio of companies, the HNA Group draws on lines of credit in excess of US $60 billion from state banks.

So while we may not see another HNA Group acquisition go unquestioned, SF Express and the other Chinese express companies will likely continue with their plans for international expansion.

Those interested in learning more about SF Express, are invited to join us in Miami next fall for the Cargo Facts Symposium where Patrick Frith, GM America, SF Express International Business Unit will speak on a panel dedicated to “taking advantage of the e-commerce revolution.”  For more information, or to register, visit www.cargofactssymposium.com