- During 2021, the Chinese economy slowed down after surging in the first quarter, resulting in the deceleration in corporate profit growth rate. At the same time, the Chinese government increased regulatory scrutiny on several activities, including the real estate sector, which exerted downward pressure on the growth of the corporate investment. As such, the overall environment has not been conducive for Chinese firms to pursue outbound M&A activities.
- Against this backdrop, China’s completed overseas M&A value continued to come down during 2021. While there was a slight increase in announced deals, it is uncertain whether they will be completed based on the experience of the past couple of years.
- In terms of geographical destination, Europe still attracted the largest number of deals from Chinese companies, followed by Asia Pacific. Thanks to Tencent’s additional purchase of 10% ownership from Universal Music, the US rose as the biggest destination in terms of deal value, but this was still partly linked to Europe as Universal Studio was held by French conglomerate company Vivendi. Following the US, the major destinations for Chinese overseas acquisitions include Chile (State Grid - General de Electricidad), Japan (Hisense - Sandel deal), and Spain (China Three Gorges’ purchase of operating renewables).?
- Industrial sectors, especially in Europe, attracts the largest number of deals from China. Other key sectors include health care, energy, ICT and Chemical & Materials. The entertainment sectors stood out in terms of value but that was mainly due to the Tencent deal.
- There were fewer state-owned Chinese enterprises participating in overseas M&A, especially in terms of deal value. SOE investment was more focused on Asia Pacific and the other regions than the US and the EU, given their tighter regulation over Chinese acquisitions especially if pursued by SOEs. At the sector level, SOEs are particularly active in the chemical & material and energy sectors but with much less exposure to the consumer sector.
- All in all, China’s outbound M&A continued to shrink in the second half of 2021, due to economic uncertainties, strict regulatory environment as well as tight border control. Given that growth is expected to decelerate against the backdrop of tighter global financial conditions and no immediate exit in sight of border controls, we are not expecting a recovery of China’s outbound M&A in 2022.
Full report is available for Natixis clients.
