Beware of the potential risks arising from overseas M&As

The total value of Chinese enterprises' overseas mergers and acquisitions in the first quarter of this year exceeded $100 billion, almost equal to that of the total last year. Thepaper.cn comments:

Overseas mergers and acquisitions by Chinese enterprises are an increasingly evident trend. More than 1,600 of the 2,800 domestic companies listed in the Shanghai-based A-share market are valued at more than $1 billion. In contrast, many overseas companies are valued at less than $100 million even though they are performing well. This has resulted in domestic companies having the confidence to engage in an increasing number of M&As overseas.

Domestic investors welcome such moves because that might enhance the position of domestic companies in the global value chain, and produce further dividends for them.

A report by PricewaterhouseCoopers shows that companies listed in the A-share market played a major role in overseas M&As last year, making 121 deals, about 60 percent of the total.

Such M&As benefit all involved, but there is a risk they might create a bubble in the stock market.

If such a bubble does emerge and then bursts, that might lead to a plunge in the stock market and consequently a chain reaction that would be disastrous for all.