China has become one of the most important sources of global crossborder M&A. In 2007, it accounted for only one percent of global cross-border M&A value. By 2016, China captured 14 percent—>second only to the United States, which accounted for 19 percent. In 2016, Chinese companies spent US$140 billion on global acquisitions, almost twice the previous annual record set in 2015.
Yet the future of China’s global M&A has recently become a matter of debate. Chinese investors face serious challenges, including tighter controls on outbound capital flows in China, dangerously high levels of corporate debt and greater overseas scrutiny of Chinese investment. These short-term risks may result in a more volatile outbound M&A pattern in coming years.
The debate about short-term risks is important, but it should not overshadow the long-term potential of Chinese outbound investment. Chinese capital is still vastly under-deployed globally, leaving China with ample room to grow its global investment footprint. If it is able to address short-term challenges, Chinese companies will invest hundreds of billions of dollars in the coming decade.
This report provides important context for this debate. It first reviews China’s emergence as the world’s second-largest M&A investor, illustrating how significant a player China has become in recent years. It then discusses the short- and medium-term challenges that Chinese outbound investors face, and explains the underlying issues that need to be addressed. Finally, the report takes a long-term view on the future of Chinese outbound investment by calculating potential Chinese outbound M&A flows under three different scenarios between 2015 and 2025.
Our analysis shows that barring an economic crisis in China, the record set for Chinese outbound M&A in 2016 is not a one-off event. If China sustains economic growth and stays on track with external financial liberalization, the average annual value of Chinese outbound M&A will more than double from 2015 to 2025 compared with the period from 2010 to 2015.
Challenges notwithstanding, Chinese cross-border M&A is likely to grow significantly over the next decade