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China Outbound Deals Down 65% During First Half Due To Tightened Capital Controls

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China inked a total of 163 outbound deals worth US$43 billion during the first half, down 65% in terms of total deal value compared to the same period last year, as the nation’s tightened capital control measures dampened Chinese overseas investment.

This helped to drag down outbound deals in Asia Pacific, ex-Japan, by 58% to US$55.7 billion involving 268 deals during the first six months, according to data from Mergermarket Group.

With increasingly restrictive regulations on outbound deals, Chinese companies have shifted towards domestic transactions. Domestic deals accounted for 69% of Chinese deal-making, compared to 56.3%, in the first half of 2016.

Deals between Chinese bidders and targets comprised eight of the top 20 deals in the Asian Pacific region. The largest of these saw a consortium of 11 investors acquire a 14.74% stake in Hengda Real Estate Group for US$5.8 billion, the fourth biggest deal in Asia Pacific so far this year.

After years of encouraging outbound investments in the so-called "China Go Out" strategy, the Beijing government has tightened oversight on companies’ overseas acquisitions in part to alleviate capital outflow. Regulators now require companies to obtain additional approvals when buying foreign companies, especially large deals.

The value of Chinese deals in Europe in the first half of 2017 dropping by 65.7% to US$25.6 billion across 59 deals, compared to a record US$74.8 billion total deal value across 86 deals during the same period last year. However, the US$45.9 billion ChemChina-Syngenta deal last year distorted the data somewhat.

China’s overall M&A activities, including both outbound, inbound and domestic transactions, also experienced a drop of 23.8% by deal value. There were only 675 transactions worth US$134 billion in total deal value announced during the first half, compared to 774 deals worth US$176 billion the same period last year. As a result, China accounted for 49.1% of Asian deals, down from a ratio of 59.9% last year.

China’s weakness helped cool down regional performance in general. Asia Pacific, ex Japan, recorded 1,585 deals valued at US$272.9 billion in the first half of 2017, representing a 7% decrease by deal value compared to the same period last year, according to MergerMarket.

CMN China VC Tracker

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