Chinese overseas deals worth almost $75bn were cancelled last year as a regulatory clampdown and restrictions on foreign exchange caused 30 acquisitions with European and US groups to fall through.
The figures, which reveal a sevenfold rise in the value of cancelled deals from about $10bn in 2015, highlight a waning appetite for global dealmaking by the world’s second-largest economy. But despite more deals being abandoned, the analysis by law firm Baker McKenzie and researcher Rhodium shows that Chinese direct investment into the US and Europe still more than doubled to a record $94.2bn in 2016.
Sellers of assets in Europe and the US are becoming increasingly wary of large deals with Chinese buyers, according to people involved with several cross-border transactions involving China.
“The Chinese are getting more professional but sellers are giving more priority to potential buyers outside China because of the restrictions imposed on capital,” said one person who dealt with mainland buyers.
China notched up a record capital exodus last year, driven by expectations that the renminbi would continue to weaken against the dollar, and as slowing domestic growth diverted investment elsewhere.
Regulators were unnerved as Beijing burnt through dollars to stem currency depreciation, with reserves falling $320bn last year. In an attempt to save reserves, the foreign exchange watchdog became one of the biggest hurdles for Chinese groups seeking to buy businesses overseas late last year.
Regulators vowed to curb “irrational” acquisitions, scrutinise any purchases of more than $1bn outside an investor’s core business, and monitor cross-
border deals involving land, hotels, film production and entertainment assets.
Several deals attempted last year lacked obvious ties to the buyers’ original businesses in China. The biggest failure was Anbang Insurance’s attempted $14bn takeover of Starwood Hotels & Resorts of the US, which was blocked by Chinese regulators.
Last February two attempted deals involving Fosun International, one of the country’s most acquisitive private conglomerates, and the state-backed China Resources collapsed in two days.
Ten US deals worth $58.5bn were scrapped. A Chinese consortium’s $3bn offer for a US-based lighting unit of Philips, the Dutch group, was thwarted by the US Committee on Foreign Investment. US regulatory fears prompted Fairchild Semiconductor to turn down a $2.6bn bid from state-backed groups China Resources and Hua Capital.
In Europe, 20 deals worth $16.3bn were cancelled, including the proposed sale of German chip equipment maker Aixtron to Chinese investors for €670m.
However, Chinese groups are still buying at a rapid pace, given that direct investment was just $2.6bn a decade ago.
Thomas Gilles, China specialist at Baker McKenzie, said political and regulatory scrutiny in China had made the near-term outlook “more challenging” and made “political risk assessment and regulatory planning” increasingly important for dealmakers.