Chinese outbound mergers and acquisitions (M&A) saw a drastic drop in the first half of 2019, which could be attributed to a multitude of factors, including the ongoing trade war, increasing scrutiny of foreign investments in the US and Europe, compounded by domestic challenges such as a slowing economy and the tightening of Chinese banks’ lending to local companies.
At first glance, the outlook for China’s outbound M&A is not positive. Nonetheless, Jonathon and Sherrie believe there is reason to remain confident that such investments will rebound in the longer term, and that Chinese outbound investment may be the new face of globalisation.
In recent years, China has significantly stepped up its efforts to extend its influence globally. Perhaps no project represents China’s globalisation drive more clearly than the Belt and Road initiative, an ongoing outbound investment strategy that aims to recreate China’s ancient Silk Road trade routes to Europe and the Middle East.
Following the decline in the value of outbound Chinese M&A investment to the US and Europe, Asia and Oceania are expected to become the most popular overseas M&A destinations for Chinese companies, driven by the Belt and Road initiative and China’s improved relationships with various Asian markets. In the first quarter of this year, the announced value of China’s M&A to Asia and Oceania increased by over 80 percent from the same period last year.
Jonathon and Sherrie also pointed out that the targets of Chinese investment are changing. Chinese companies are increasingly investing up the value chain, with more deals involving telecommunications, media, technology, health care and life sciences.
China is said to be only beginning its initiatives in global investment. Macroeconomic fundamentals suggest Chinese companies have ongoing needs to acquire strategic assets overseas, underpinning strong outbound M&A activities in the coming years.
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