Chinese investment in foreign companies through mergers and acquisitions (M&A) fell to its lowest level in more than a decade in 2022, with cross-border deals worth $18.3bn agreed, half that of the previous year.
- M&A of foreign companies by Chinese investors last year hit a decade-low due to tighter financing conditions, heightened scrutiny, and regulatory concerns.
- The value of Chinese outbound M&A has fallen by 90% since 2016, largely due to stricter capital controls and the government’s “deleveraging campaign.”
- Chinese investors have shifted their attention to other parts of Europe, Asia, and the Middle East, as geopolitical tensions and regulatory barriers continue to impact cross-border dealmaking.
The decline has been driven by the reinstatement of capital controls, which has made it hard for Chinese companies to obtain loans for overseas M&A, and greater scrutiny of foreign attempts to buy Western companies in sensitive sectors. Regulatory concerns have led to deals being blocked. Chinese greenfield foreign direct investment has overtaken M&A in Europe.
One of the main reasons behind the slowdown in Chinese M&A activity overseas is the government’s tightening control over capital outflows. In 2017, the Chinese government introduced restrictions on overseas investments to curb irrational and excessive outbound investments. This move was aimed at reducing the risks posed by highly leveraged and speculative investments made by some Chinese companies and conglomerates.
Additionally, China’s increased scrutiny of outbound investments related to national security concerns has also had an impact. Certain sectors, such as technology and critical infrastructure, face stricter regulations and scrutiny from both the Chinese and foreign governments.
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