Due to the sluggish Chinese economy and the tightening of the “Anti-Spy Law” by the Chinese Communist authorities, cross-border transactions in China have been severely impacted. According to foreign media analysis, the amount of mergers and acquisitions (M&A) transactions involving Chinese enterprises in the first half of this year decreased by 45% compared to the previous year.
The Nikkei Asia reported on Tuesday (July 30th) that according to data from the London Stock Exchange Group (LSEG), the total value of mergers and acquisitions involving Chinese enterprises from January to June this year was approximately $96 billion, a 45% decline from the previous year. Compared to the peak of $470 billion in the period from July to December 2015, this represents an 80% reduction.
Data indicates that cross-border mergers and acquisitions involving Chinese enterprises have been steadily decreasing since the first half of 2022. In the first half of this year, mergers and acquisitions involving Chinese enterprises accounted for only 8% of the total global transactions, significantly lower than the 23% in the second half of 2015.
Meanwhile, according to a report released earlier this month by Bain & Company titled “2024 Mid-Year M&A Report,” global mergers and acquisitions in the first half of this year increased by 21% compared to the same period last year.
This indicates that mergers and acquisitions involving Chinese enterprises are out of sync with the global transaction recovery.
The most significant decline has been in acquisitions of Chinese companies by foreign firms, with such transactions dropping by 56% to $8.5 billion, the lowest value since the outbreak of the pandemic in 2020. If Chinese acquisitions of foreign companies are also taken into account, the total transaction amount further decreased by 65% to $20 billion.
The Nikkei analysis points out that one of the reasons for the decline in transaction volume is the weak Chinese economy.
Many experts believe that official economic data from the Chinese Communist Party may be embellished or manipulated. Nonetheless, according to official statistics, China’s Manufacturing Purchasing Managers’ Index (PMI) has been below 50 for the second consecutive month in June. The threshold of 50 is used to distinguish between growth and contraction.
With the long-standing slump in China’s real estate sector and weak domestic demand, the country continues to face deflationary pressures. Compared to other countries, foreign firms see diminishing benefits in expanding into the Chinese market.
Yoshio Tsutsushio, a partner at PwC Consulting, stated, “The worsening of the Chinese economy has made it difficult to forecast target company profits, leading more funds to hesitate in investment decisions.”
The Nikkei also highlighted another obstacle to transactions, which is the stricter “Anti-Spy Law” imposed by the Chinese Communist authorities.
July 1 marked the one-year anniversary of the implementation of the revised “Anti-Spy Law” by the Chinese Communist Party. Over this year, foreign investment has lost confidence in the Chinese market, and the ambiguous nature of the law has left foreign companies at a loss, prompting many to halt their Chinese operations or withdraw altogether.
Hiroshige Nakagawa, a lawyer at Anderson Mori & Tomotsune law firm, told the Nikkei that some foreign researchers and employees of companies relied upon have been arrested, creating “psychological barriers for foreign investment in entering China.”
Previous analyses also indicated that the de-risking strategies towards China taken by European and American countries, as well as responses to non-market economic policies by the Chinese Communist Party, have increased the uncertainty in the Chinese market. Currently, the United States, Japan, and Western countries aim to reduce their reliance on China, strengthen restrictions on key technologies, and intensify scrutiny of Chinese acquisitions in critical industries.
Tsutsushio predicts that as the U.S. election approaches and uncertainties in U.S.-China trade relations rise, significant recovery in cross-border transactions involving Chinese enterprises is unlikely to occur.