Chinese investment in North America and Europe would have been even higher in 2016 if not for a significant rise in aborted transactions, which jumped to a record 30 deals worth $74 billion. By comparison, 23 transactions worth $7.9 billion were canceled in 2015 and 13 deals worth $2 billion were canceled in 2014.
THE NUMBER OF CANCELED AND WITHDRAWN TRANSACTIONS ROSE AMID NEW CHINESE MEASURES TO SLOW CAPITAL OUTFLOWS AND HEIGHTENED US AND EU SCRUTINY.
In Europe, Chinese investors canceled or withdrew 20 deals worth $16.3 billion. In North America, Chinese investors walked away from 10 deals worth $59 billion.
Although the rise in canceled transactions can be partially attributed to a much higher volume of announced transactions in 2015 and 2016 as well as purely commercial reasons, greater regulatory and political scrutiny in China, North America and Europe also contributed to the increase.
In China, regulators tightened administrative controls on outbound investments in 2016 to stabilize capital outflows as changing exchange rate expectations encouraged Chinese investors to use outbound investments to move capital out of China. This greater scrutiny, although expected to be short-term, has already hindered the ability of Chinese companies to exchange local currency into foreign exchange for certain types of deals, including real estate, entertainment and primarily financial investments.
In both North America and Europe, government authorities have intervened to block technology acquisitions by Chinese investors because of national security concerns. The most high-profile examples are in the semiconductor industry, where Chinese buyers had to abort several transactions because of regulatory concerns about the transfer of sensitive technology to China.
withdrawn-fdi
CANCELED AND WITHDRAWN CHINESE FDI TRANSACTIONS IN NORTH AMERICA AND EUROPE
Source: Rhodium Group.
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Record levels of Chinese investment have also fueled concerns about a growing imbalance of two-way investment flows between both regions and China, with some policymakers calling for reciprocity of access. For example, the US Congress is expected to consider legislative proposals to tighten the Committee on Foreign Investment in the United States’ reviews for technology deals and to consider whether an investor’s country of origin provides reciprocal access as part of the review process.
“While CFIUS has been consistent in its approach, the volume and nature of the deals have produced more challenging transactions, with US officials coordinating with counterparts in other advanced economies.” ROD HUNTER, Policy and regulatory partner in Baker McKenzie’s Washington, DC office
Appendix A: Transaction Attractiveness Indicator
Appendix B: Country Forecasts
Appendix C: Methodology
M&A Transactions (US$B)
M&A Transactions (# Of Deals)
Domestic IPOs (US$M)
“The increase in canceled deals is primarily a function of the huge growth in Chinese investment as well as the fact that Chinese companies are pursuing more megadeals. Deals of that size and complexity are always more challenging from a regulatory perspective regardless of the nationality of the buyer. That said, greater political and regulatory scrutiny has made Chinese investment more challenging in the near term.” THOMAS GILLES, Chair of Baker McKenzie’s EMEA-China Group
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Chinese direct investment in North America and Europe more than doubled
North America took the lead as the top target market by deal value
Chinese investors target different assets in North America and Europe
Privately-owned Chinese companies drove acquisitions
Chinese investors continue to target assets in key jurisdictions in both regions
The number of canceled and withdrawn transactions rose
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