Heightened regulatory pressure on outbound foreign investment led to a sharp plunge in the overseas acquisitions of Chinese companies in 2017.
A recent report by Mergermarket indicates that China and Hong Kong posted USD$137.1 billion in outbound merger and acquisitions deals in 2017, for a 32.8% drop compared to the historic high of USD$204.2 billion in 2016.
The unprecedented volume of foreign M&A deals undertaken by Chinese companies in 2016 prompted a crackdown by Beijing, who imposed capital controls and warned banks against financing reckless overseas acquisitions.
Beijing has signalled further pressure on outbound foreign investment in 2018, with the release of a list of “sensitive industries” when it comes to overseas buying, including real estate, entertainment and fitness centres.
Last year multiple figures from China’s central government labelled outbound foreign investment in such sectors as “irrational“, with central bank governor Zhou Xiaochuan warning that they fail to bring significant benefit to companies yet generate discontent in other countries.
In sharp contrast to the crackdown on overseas acquisition in sensitive sectors, however, tech investment has remained strong, with Chinese online giants Alibaba and Tencent taking the lead in foreign purchasing.
Data company ITJUZI.com reports that outbound investment by Chinese companies in the media, telecommunications and technology sectors hit 395 billion yuan (USD$62.28 billion) in 2017, with Alibaba accounting for 13 deals and Tencent a whopping 28.
According to ITJUZI key focal areas for tech investment included AI, big data, biotech and cloud computing, as well as key fintech areas such as blockchains and cryptocurrencies.
A recent report from PwC said that China’s outbound foreign investment will continue to focus on Europe and the US, as Chinese companies endeavour to obtain advanced technologies.
According to the report the number of Chinese investment deals in the US hit a record-breaking total of 221 in 2017, despite the Trump administration’s increasingly protectionist attitudes.
The report sees this trend containing in 2018, as well as Beijing encouraging outbound direct investment in Belt and Road projects and other strategic areas.
“We…expect China’s large technology companies to [continue to] be active on the global stage.
“On-strategy outbound M&A’s, including going-out-to-bring-back, industrial upgrade and Belt and Road, continue to be encouraged by government policy, and the stabilisation of the renminbi, availability of capital and positive valuation arbitrage for A-share listed buyers, all point to continuing strong activity.”