Sharp Cooling In Chinese Outbound Mergers And Acquisitions

China’s plan to invest in strategic industries across the globe is experiencing some international challenges. Foreign regulators are increasing blocking new deals, and in doing so are delivering the second major blow to outbound investment, following Beijing’s crackdown on the overseas corporate acquisitions in 2016. Last year Beijing issued new rules that identified investment in property, film, and sports as “irrational” and should be “restricted.”

An overseas acquisition boom in 2016 saw private Chinese companies investing in film studios, hotels, and sports clubs. This activity suddenly ground to a halt late last year. As a result, 2017 saw a sharp cooling in Chinese outbound mergers and acquisitions, particularly in terms of the number of deals, their value, as well as the range of businesses involved. On the other hand, Chinese officials are encouraging investment that aligns with the country’s strategic interests, such as those along the “Belt and Road” initiative and those that help to boost technology.

According to the Ministry of Commerce, China’s outbound non-financial investment slumped 41.8 percent to US$68.7 billion in January to August 2017, down from a year earlier in 2016.

In the U.S. CIFUS and public opinion have turned increasingly negative toward Chinese investment, especially in sensitive areas such as semiconductors, Europe may be more receptive but it presents other challenges, such as antitrust. – Howard Zhang, partner with Davis Polk & Wardwell LLP.

Chinese-backed acquisitions of American companies now under review by American officials include the proposed sale of MoneyGram, the payments company, to Ant Financial.

Chinese do not need to copy western corporate governance standards, but they should strive to make it easier for foreigners to understand their corporate culture. Robust governance, transparency, and predictability also a matter in post-merger integration.