As with M&A globally, Chinese M&A activity in 2016 was a whirlwind, with over 370 deals struck totalling well over $205 billion USD. This perfect storm for M&A was brought about in part by a positive regulatory landscape, a favorable financing climate, increased sophistication among Chinese dealmakers and accelerated consumption by China’s middle class.

Notable deals included ChemChina’s acquisition of Syngenta, a Swiss company producing seed and pesticides, and Midea’s purchase of German robot manufacturing company Kuka. It’s early days for 2017, but initial projections decree a leveling out of the M&A landscape. Again, analysts feel that China will mirror this leveling and perhaps even move into a period of slowdown.

Potential Slowdown in Outbound M&A for China in 2017

As cash flows out of China into global deals, government officials are beginning to tighten the hold on that flow with increasing regulation. This increased scrutiny on Chinese M&A is meant to avoid yuan depreciation and depletion of foreign reserve monies. Not looking to handcuff companies but to provide for managed growth, the government is reacting to a banner 2016. A January 2017 report by economic think tank Rhodium Group reveals that Chinese to Europe investments grew 77% year over year in 2016. Rhodium Group also found that last year’s China to US investments was three times that of the prior year.

China’s government leaders need to balance their caution about outbound M&A with a long view of Chinese mergers and acquisitions, which will provide some of the infrastructure necessary for the “Made in China 2025” campaign, an effort designed to elevate China’s R&D efforts, increase domestic manufacturing abilities and promotion innovation. This can only be done if outside perspectives, research, experience and technology are available to Chinese business people. Additionally, a continued focus on Chinese M&A furthers Chinese influence on the worldwide stage. Most analysts agree that the opportunity for strong, well-vetted outbound M&A deals is still strong for Chinese investors.

Lastly, changing US policies could also affect global acquisitions for China as Trump has taken the helm of the White house and is decidedly focusing on change to tax policy and creating an economic environment that brings industry back to the United States.

Technology M&As Hot Commodity

Despite general predictions for a cooling of Chinese outbound M&A, analysts acknowledge that the technology sector is one that will remain of strong interest to Chinese dealmakers. An emerging market subject matter expert for Forbes affirms that as Chinese investors look for acquisition opportunities in 2017, they will continue to move away from manufacturing, which has historically been in export demand, to a more diverse set of sectors, including technology, industrial, chemical and consumer goods. The eyes of dealmakers will continue to stay trained on merger and acquisition opportunities globally and specifically how Chinese bids factor into the overall M&A landscape.

Cornfield & Partners can help you navigate the Chinese M&A landscape as well as to discover other market opportunities in China, including production targeted to local markets in the areas of R&D, technology and industrial equipment. To find out more about potential business opportunities, contact info@cornfieldpartners.com or call us on +44 (0) 20 7692 0873.

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