Chinese investors pivot to Asia amidst tighter Western scrutiny

However, deal sizes may shrink as investors opt for minority stakes and joint ventures.

Chinese investors are projected to direct their outbound investment towards advanced Asian markets like Japan, South Korea, Hong Kong and Singapore as it pivots away from United States and Europe amidst tighter capital outflow controls and rising protectionist sentiment in the West, according to BMI Research. 

This comes as Ant Financial’s proposed US$1.2b acquisition of US-based money transfer firm Moneygram was rejected by the US Committee on Foreign Investment on the grounds of national security. 

Germany, a key destination for Chinese investors, similarly announced a policy last July 2917 that allows ministers to investigate deals involving companies involved in utilities, payment, medical and transportation systems. 

“We note that Chinese investors could invest more in some of the more advanced Asian markets…Chinese investors might opt to invest in Asia to avoid strict scrutiny from Western countries,” said BMI Research. 

However, the average deal size may be significantly smaller with Chinese companies likely to engage more in minority stakes and joint ventures than acquisitions. This move comes as the domestic government tightens controls on large capital outflows with the State Council’s announcement discouraging Chinese investment in entertainment industries like cinemas, sports clubs and hotels last August 2017.

BMI cites Bloomberg data which noted that the total volume of announced outbound M&A deals shrank 24.3% to USD243b as opposed to the previous year’s US$321b. 

“While we believe that Chinese companies will continue to seek to invest overseas, the deal size that they are proposing will likely be much smaller over the coming quarters. Chinese investors will continue to venture overseas in an effort to diversify their portfolios and move up the value chain.”