In 2017, China's global outbound investment dropped for the first time in more than a decade as policy changes in China and host economies cooled M&A activity and created a shift in the industries and geographies targeted by Chinese investors.
The Chinese government began placing greater restrictions on outbound investment in late 2016, discouraging highly-leveraged, aggressive outbound investment. At the same time, growing regulatory scrutiny in many host countries also impacted Chinese FDI activity. In particular, a significant number of deals were held up or derailed by CFIUS, which screens foreign takeovers of US assets for potential national security risks.
Our report, Rising Tension: Assessing China's FDI Drop in Europe and North America, provides insight into how and why China’s outbound investment patterns are changing in the world's two highest income regions: Europe and North America.
- China's global outbound investment dropped in 2017 for the first time in more than a decade because of a changing regulatory environment in China as well as greater scrutiny abroad
- New Chinese investment activity in Europe and North America sharply declined in line with the global drop in Chinese outbound investment
- However the completion of mega deals carried over from 2016 pushed combined Chinese investment in both regions to a new record of $111 billion
- Europe attracted more Chinese capital in 2017 than North America, but most of the difference is explained by a single mega deal (Syngenta)
- Mega deals dominate industry rankings but the new political reality is impacting new deal making
- China’s regulatory crackdown has significantly changed the composite of investors, elevating certain state-related and qualified private investors while punishing private companies with a track record of aggressive overseas deal making
- Switzerland, the UK and the Netherlands received the most Chinese capital in Europe in 2017; New York, Virginia and California were the primary recipients in North America
- While Beijing’s crackdown on “reckless” deal-making led to a decline in the number of terminated and withdrawn Chinese deals, overseas regulators and political backlash sank more Chinese deals than ever before
After a sharp drop in announced deals in the first half of 2017, Chinese outbound investment activity stabilized in the second half of 2017. Fading concerns about China’s capital outflow and clarification of Beijing’s outbound investment stance through a formal OFDI regime have supported that recovery.
Although deal activity remains far from the highs in 2015 and 2016, the appetite of Chinese companies for acquisitions seems to have recovered. The deal pipeline increased in both regions in the second half of 2017, and activity continued to rise in the first quarter of 2018. But the recovery is not even. Europe had more than USD 8 billion of pending M&A transactions at the end of 2017, while North America’s pipeline was only USD 5 billion.
Our lawyers have featured in a number of global publications discussing the ongoing situation between the US and China around trade tariffs.