Charts of the Day: Chinese Outbound Investment, M&A Suffers Third Annual Drop

Outbound investment and mergers and acquisitions (M&A) by Chinese companies dropped for the third consecutive year in 2019, a new report shows, reflecting continued fallout from the government’s crackdown on deals that started in late 2016, tighter foreign-exchange controls, and increased scrutiny from overseas regulatory authorities.

The announced value of cross-border M&A instigated by Chinese companies shrank 31% to $68.6 billion, and the number of deals fell 23.5% to 591, according to a report from accounting and consultancy firm Ernst & Young Global Ltd. published on Feb 13. Activity was dominated by the technology, media and telecoms (TMT) sector, consumer products, and power and utilities, the report said. The data include companies in Hong Kong, Macao and Taiwan.

Outward non-financial direct investment in 2019 slid 8.2% to $110.6 billion, with spending mainly directed at leasing and business services, manufacturing, and the wholesale and retail sectors, the report said, citing data from China’s Ministry of Commerce. Total outbound direct investment dropped 9.8% to $117.1 billion.

In another sign of the slump in Chinese companies’ overseas spending, a Feb. 11 report by financial markets data and infrastructure provider Refinitiv Ltd. showed China dropped to eighth place as the most active acquirer of overseas assets globally in 2019 from second position in 2016.

As scrutiny of Chinese acquisitions in the U.S. and Europe has increased and companies put more focus on the Belt and Road Initiative, Asia has become the largest destination for M&A activity, accounting for nearly 30% of all overseas deals by Chinese companies in 2019, the Ernst & Young report showed. Despite the sharp decline in overall M&A, spending in Asia grew 19.1% to $22.3 billion. Overseas investment also jumped in Latin America thanks to significant deals in Peru and Chile in the electricity and utilities sectors.

Chinese enterprises’ M&A in North America continued to be constrained by geopolitical risks and foreign investment restrictions, the report said, with the announced value of deals dropping nearly 30% in 2019 to $13.5 billion, the lowest since 2012. But an easing in trade tensions between China and the U.S. led to a pickup in activity in the fourth quarter of 2019, restoring the world’s biggest economy as the top destination for Chinese overseas M&A for the year as a whole.

Activity in Europe was also depressed last year, with the value of M&A announced by Chinese companies plunging 57.1% to $20.5 billion, the third annual decline and the lowest value since 2014. The main destinations for investment were the U.K., Switzerland and Germany, the Ernst & Young report said. The U.K.’s departure from the EU on Jan. 31 will help to reduce uncertainty for Chinese enterprises seeking to investment in Europe, it added.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

Caixin Global has launched Caixin CEIC Mobile, the mobile-only version of its world-class macroeconomic data platform.

If you’re using the Caixin app, please click here. If you haven’t downloaded the app, please click here.