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M&A Activity in China

With my time as CIBS Research Group Director coming to an end, I thought the most fitting way to write my last article would be to reflect back on my first. 2021 has marked the busiest-ever start to a year for M&A activity in China, with a record pace of deal-making that has already totalled $77.5bn for the first quarter. This is a continuation of the hot period of M&A that coincided with China’s recovery from the pandemic, undoubtedly the strongest recovery globally, in the second half of 2020. With M&A deal value in China increasing by 30% to $724bn in 2020, this article examines the environment which has induced this uptick in activity in such a difficult economic period.

Explanations for China’s M&A hot period

A buoyant stock market at record-highs and the sheer number of IPOs in waiting have driven domestic asset prices up higher, providing an environment for booming M&A activity in China. This is only reinforced by China’s position as the frontrunner of the global economic recovery from the pandemic, with the IMF forecasting 2021 economic growth of 8.1% for the country first hit by COVID-19. As the country started to recover from the pandemic, a backlog of prospective deals were restarted at the back-end of 2020, along with new opportunities that had arisen as a result of the first two quarters, namely in the ecommerce and technology space.

Private capital has been extremely proactive in China’s M&A market in the last year, driven by strong government intervention in strategic acquisitions and private equity buyouts. This has seen state-sponsored capital injections, particularly in the industrials, technology, consumer, and healthcare sectors. The Asset Management Association of China recently reported that the value of private equity under management grew by nearly 16% between December 2019 and November 2020 — from approximately $2.12trn to $2.45trn — with private equity firms looking to invest their substantial dry powder in domestic opportunities provided by the Covid-induced economic downturn. The significant role of private equity in “promoting China’s economic development during the pandemic” was remarked by the China Securities Regulatory Commission (CSRC), affirming government support for private equity investors and deals that provide private capital to Chinese companies, without the need for banks or the stock market. This perfect storm of huge amounts of liquidity in the system, with dry powder currently at three times the level of the post-Global Financial Crisis period, and high demand for capital for struggling firms has provided a hotbed for domestic M&A due to private equity. Asset prices remaining high have only exacerbated this activity, with exit opportunities for private equity firms proving more profitable than would otherwise have been the case with a subdued stock market and lower asset prices.

Domestic M&A

Domestic M&A activity in China is undoubtedly the driving force behind the current trends we observe, with significant levels of government investment aimed at strengthening the domestic economy during 2020 — domestic M&A has rebounded to levels last seen in 2017. This comes as the Chinese Communist Party announced its 5-year plan in Q4 2020 and approved this on March 11th 2021. This 5-year plan is centred around self-sufficiency, with government policy aimed at reducing China’s dependence on overseas technology and markets. This most notably affects the semiconductor industry, a lynchpin of US exports in Silicon Valley, with China importing more than $300bn worth of semiconductors a year. Most major US semiconductor companies generate over 25% of their revenues from the Chinese market, illustrating the mutual dependence both countries currently have on each other in the technology supply chain. The dual circulation strategy implemented by the Chinese Community Party is to rectify this external vulnerability of Chinese supply chains, with aims to increase R&D spending by more than 7% annually as well as tax cuts to basic research, resulting in large waves of M&A activity in the sector this past year.

Cross-border deals

Cross-border deals took a significant hit in 2020 as a combination of the pandemic, deglobalisation, and deepening geopolitical tensions dampened outbound M&A activity. As a result, deal values for outbound M&A were the lowest since 2010. The announcement of the 5-year plan by the Chinese Communist Party, with a clear drive for domestic demand, has diverted capital away from international deals and instead, into domestic acquisitions. Hence, we see this divergence between burgeoning domestic M&A and significantly low outbound M&A. With greater uncertainty shadowing the economic growth forecasts of global competitors, China’s outlook for 2021 seems to be attractive for current investment. Despite outbound M&A activity residing at its lowest level in over a decade, inbound M&A activity has risen by 14% in China in early 2021. This has led to China overtaking the US as the world’s largest recipient of FDI (Foreign Direct Investment) in the past year. Clearly, China’s projected growth, along with its growing ecommerce and technology sectors, are appealing to international investors despite the ongoing geopolitical tensions between China and the US and the potential national security risks each country faces.


Xi’s 5-year plan has signalled the direction of state investment in the medium-term for China and has, along with stronger economic recovery from the pandemic, created a boom in domestic M&A activity. The long-term objective of reducing dependence on international supply chains suggests that greater domestic demand should sustain in the longer-run, and domestic M&A as a result should remain higher than it previously was, as capital is diverted towards high-growth companies in China. Cross-border activity will be reliant on the international recovery from the pandemic, but with disparities between different countries and continents, this is difficult to predict in such an uncertain environment.  


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