Chinese companies have been slower to expand abroad than many in the global business community had expected, but some evidence suggests that the long-awaited expansion is now under way: in the first quarter of 2008, they announced foreign direct investments of almost $26 billion (182 billion renminbi)—nearly twice as much as during the same period last year.

These companies are in a good position to make an impact in the global M&A market. At the very moment when the valuations of their foreign counterparts are falling as a result of turmoil in the world economy and global capital markets, many of them are sitting on large cash balances built up over the past few years of quick and profitable growth. Others are responding to the convergence of high domestic liquidity levels (including the money that Chinese banks have to lend and the state’s foreign reserves), global exchange-rate adjustments, political support for overseas expansion, and the need for access to raw materials and new markets.

That raises eyebrows in many Western countries, where uncertainty over the source of the capital and fears of political interference in strategically important industries are generating significant opposition to otherwise solid business ventures. There is also concern about whether some of these overseas deals will create value for investors.

To develop a clearer understanding of the globalization strategies of Chinese companies, we assessed all of their cross-border deals from 1995 to 2007 and examined some of their more recent large-scale M&A ventures in greater detail. We found that these companies have diverse motives for acquiring foreign ones and that not all of the acquisitions are aimed primarily at creating value for shareholders. Indeed, few have actually done so, at least in the short term.