Mergers and acquisitions of Chinese companies fell 17% year-on-year in 2021 to $24 billion, according to Baker McKenzie‘s eighth annual analysis of China‘s offshore investment trends, conducted in collaboration with Rhodium Group.
Overall, China’s outward Foreign Direct Investment (FDI) remained stable in 2021 compared to the previous year, contrasting with a strong rebound in global FDI flows.
As such, M&A activity completed by Chinese companies fell modestly to $24 billion in 2021, compared to $29 billion in 2020,
Over the past five years, FDI from China has steadily declined due to higher domestic barriers to outward capital flows, as well as a more complicated regulatory environment abroad.
The decline in mergers and acquisitions has been especially sharp and China’s strict pandemic measures have further weighed on exit deals in 2020 and 2021, in contrast to a strong recovery in global cross-border M&A over the same period.
Fusions and acquisitions
Jannan Crozier, Global President of the Firm’s Global M&A Practice Group, commented: «M&A is back with a bang, according to Refinitiv, global M&A reached $5.9 trillion last year, which is which represents an impressive jump of 71% compared to 2020 levels.”
These numbers are backed by record deals in the tech sector, which alone hit $1.1 trillion in 2021.
Meanwhile, Chinese FDI aligned with this global trend and showed a slight rebound, totaling $138 billion in 2021, compared to $134 billion in 2020 and $117 billion in 2019.
However, with increased scrutiny of foreign investment by regulators in other countries, particularly in the technology sector, many Chinese companies are also looking at domestic options.
Regions
Europe saw the most interest in mergers and acquisitions in 2021 with more than $8.4 billion in Chinese deals completed.
Asia and North America ranked second and third with $5.4 billion and $4.7 billion, respectively.
Mergers and acquisitions in Latin America reached $3 billion in 2021, while acquisitions in Oceania and Africa totaled approximately $1.5 billion.
Less sensitive sectors such as consumer goods and services ($5.2bn) and entertainment ($4.6bn) were the top draws for outgoing Chinese M&A globally, accounting for nearly half of investment total.
Transportation and Infrastructure ($3.8 billion), Financial and Business Services ($3.3 billion), Basic Materials ($1.8 billion), and Health ($1.2 billion) made up the rest of the top six.
The decline in business from 2017 has resulted in a situation where China is underinvested in the world compared to its economic footprint, suggesting substantial potential for recovery if pandemic restrictions and political hurdles ease.
