Deloitte China's M&A Leader Patrick Yip quoted in Hong Kong Economic Times on Chinese outbound M&A trends

Hong Kong Economic Times published an article on December 29, titled "Chinese outbound M&A deals drop in Europe and the U.S. while investments in Hong Kong assets rise”which cited the comments from Deloitte China's M&A Leader Patrick Yip.

China's tight capital controls have slowed down the pace of China’s outbound M&A activities in Europe and the U.S.  Chinese outbound M&A values and volumes have dropped drastically from last year while Chinese investments in Hong Kong real estate have risen.  It is expected that China’s  outbound M&A activities will continue to be muted in Europe and the U.S. but investments in Hong Kong and the countries along the Belt and Road should continue to rise.  According to Mergermarket, as of this Wednesday, Chinese outbound M&A volumes and values in Europe and the U.S. this year had decreased by 23.6% to 174 deals and value had dropped sharply by 63.3% to US$55 billion. The popular targets for Chinese investors had included companies in the pharmaceutical, medical and biotech, technology and corporate services sectors in the U.S. and those in the transportation, energy, mining, utilities, industrial products and chemicals sectors in Europe.

Patrick pointed out that capital controls is one of the primary reasons for the decrease in Chinese outbound M&A activities. In addition, the more stringent approval processes exerted by overseas authorities have made the conclusion of deals, especially the larger ones in sensitive industries, more challenging.  It has had a spillover effect that made otherwise interested parties hesitant to proceed with the small- and medium-sized transactions. Although the overall pace of Chinese M&A has slowed down, it does not appear that it has had much impact on deals in Hong Kong. Many Chinese enterprises have a long history of doing business and making investments in Hong Kong.  These companies have accumulated sizeable amounts of funds in Hong Kong that are not subject to any capital controls.  Coupled with the availability of funds with financial arrangements such as 'Nei Bao Wai Dai (NBWD)', these companies should not have too much difficulty in financing their deals in Hong Kong.

Patrick expected the US dollar would become strong next year. Chinese companies may consider assets nominated in HK dollars are a good hedge against currency risk given the HK dollar is pegged to the US dollar.  On the other hand, investments in OBOR countries will continue to thrive due to China government’s support for such investments.  

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