China’s Outbound M&As Plummet 77% in First Quarter

(Beijing) — Chinese outbound investment slowed in the first quarter as regulators increased scrutiny of overseas deals, a PricewaterhouseCoopers (PwC) report said Thursday.

Chinese overseas mergers and acquisitions (M&As) fell 77% in value terms in the first quarter compared with the same period last year as the nation’s businesses reported 142 overseas M&A deals valued at $21.2 billion, the report said.

The decrease in M&A activity is related to the increased scrutiny over the authenticity and compliance of overseas deals, said Zhen Zhao, director of PwC China’s M&A services. An uncertain international political environment is another contributing factor, said Zhen, adding that he expected overseas direct investment to regain “rationality” this year.

Starting late last year, China stepped up restrictions on outbound investment in an effort to stem capital outflows as the yuan’s value tumbled to multiyear lows. Regulators were concerned that companies were pushing through deals on fears the yuan will continue to fall, and were making expensive acquisitions that did not build on core businesses.

During the China Development Forum last month, Pan Gongsheng, the head of the State Administration of Foreign Exchange, China’s foreign-exchange regulator, criticized “irrational” investments.

He cited a domestic steel maker’s acquisition of an overseas food company, a Chinese restaurant’s purchase of overseas internet gaming companies, and the frequent acquisition of soccer clubs abroad — a trend that has done little to boost China’s soccer prowess.

Overseas investment surged in 2016, when Chinese companies announced a total of $170 billion worth of investments, up more than 40% from a year earlier.

Ministry of Commerce data shows that nonfinancial outbound direct investment, a broader measure of overseas investment than M&A, dropped 48.8% year-on-year to $20.54 billion in the first quarter.

Contact reporter Liu Xiao (liuxiao@caixin.com)