China’s M&A landscape
With China’s emergence as a strong global economy, opportunities for Mergers and Acquisitions (M&A) in the Middle Kingdom have increased in number and scale. However, financial, regulatory and cultural complexities surrounding Chinese transactions present unique challenges. Between 2000 and 2016, M&A activities in the financial and materials industry stood out in terms of both number of deals and transaction value, followed by the industrial and the high-tech sector. In 2020, China’s M&A market was worth 733.8 billion USD and there have been roughly 10,551 M&A deals throughout the year.
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M&A among Chinese companies account for up to 80% of M&A deals. During the past 10 years, China’s inbound M&A recorded on average between 20 and 25 billion USD per year. However, the inbound market kept on fluctuating since the financial crisis in 2008. In 2019, the USA figured as the largest source of inbound M&A, both in terms of value and number of deals. On the other hand, China’s outbound M&A transactions have been declining in both number and value since 2016, due to increasing security scrutiny in North America and in Europe.
There is no single law or regulation specifically regulating M&A in China. Indeed, M&A deals may involve a broad range of legislation. Employment Law, Company Law and the New Foreign Investment Law (FIL) that took effect on January 2020 are just some of the main laws constituting China’s M&A regulatory framework. The FIL is especially relevant because it eliminated the distinction among Wholly Foreign-Owned Enterprises, Sino-foreign Equity Joint Ventures and Sino-foreign Cooperative Joint Ventures, and strengthened the power of the foreign party in a Joint Venture.
Despite the economic downturn entailed by the global pandemic, China’s M&A deals vaunted a two-digit growth in both value and number of transactions. Indeed, after a drop in February 2020, M&A deals started rising again in the next few months and kept on growing during the second half of the year. The Covid-19 brought about both barriers and drivers for companies interested in carrying out an M&A in China. On the one hand, market volatility and obstacles to face-to-face communication made companies more cautious and less keen to large deals. On the other hand, instead, the global pandemic prompted many businesses to seek for financial support, creating a conducive environment for mergers.