Caixin
Jul 31, 2020 07:23 AM
ECONOMY

China’s Overseas M&A Deals Plunge to 10-Year Low

South Korea and Singapore emerged as Chinese investors’ most-favored overseas M&A countries.
South Korea and Singapore emerged as Chinese investors’ most-favored overseas M&A countries.

The Covid-19 pandemic and an unsettled international political environment poured cold water on Chinese outbound investment as first-half overseas merger and acquisition deals fell to the lowest in 10 years.

In the first half of 2020, outbound Chinese M&A activity declined 17% to 248 announced deals, though the rate of decline in the second quarter eased from the first quarter. Transaction values dropped 40% to $14.6 billion, the lowest in a decade, according to a report Thursday by global advisory firm EY.

China’s overall outward direct investment amounted to $54.9 billion, down 4.4% year-on-year. Nonfinancial investment was $51.5 billion, down 4.3%, which was mainly invested in leasing and business services, manufacturing, wholesale, and retail and mining sectors, the report found.

Asia was the most popular overseas M&A destination for Chinese companies, accounting for more than half total deal values. In Asia, South Korea and Singapore emerged as Chinese investors’ most favored foreign M&A countries.

Despite tensions between China and the U.S., North America was the only region where M&A deals announced by Chinese businesses recorded growth year-over-year, mostly going to financial services, technology, media and telecom, and mining and metal sectors. Total deal valued increased 15% to $4.18 billion in North America, the report said.

Direct investment in the Belt and Road regions continued to grow. Investment in countries and regions in the Belt and Road Initiative increased nearly 20% to $8.12 billion, according to data from China’s Ministry of Commerce. The initiative is a global infrastructure development strategy adopted by China in 2013 to invest in almost 70 countries and international organizations. First-half investment in the 10 countries of the Association of Southeast Asian Nations (ASEAN) grew 53.1% to $6.23 billion.

Growth of China’s investment in the Belt and Road countries has also boosted trade, making the ASEAN group China’s largest trading partner. In the first half of this year, China’s import and export trade with ASEAN countries increased 5.6% to 2.09 trillion yuan.

The pandemic has intensified countries’ concerns about the concentration of global supply chains, which are expected to be reshaped in the future, and the regional advantages and economic development potential of ASEAN countries will further promote the deployment of Chinese companies in the region, the EY report said.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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