Outbound Chinese M&A Deals worth $75bn Cancelled in 2016

Chinese M&A boom has faced regulatory hurdles and crackdown at home and abroad. According to the latest report by global law firm Linklaters, as many as one third of Chinese overseas M&A deals by value were cancelled in 2016.
 
 
The report states that approximately US$ 220 billion of outbound investment by Chinese companies was announced in 2016, while between US$40 to $75 billion worth of deals were either blocked by regulatory bodies or withdrawn by investors, mainly due to concerns regarding national security or national interest.
 
The application of heightened scrutiny is regarded as a backlash against the aggressive M&A activities by Chinese buyers, Linklaters said. The amount of outbound spending increased by 15-fold in the last decade and more than doubled last year, according to statistics from Bloomberg.
 
Regulators have been especially concerned about deals in sectors such as energy infrastructure, high-end technology and electronics, which are pivotal to national security and national interest.
 
For instance, Royal Philips NV terminated the agreement to sell its lighting unit Lumileds to China’s GO Scale Capital after opposition from the U.S. Committee on Foreign Investment. Rejection of the deal further suggest that the U.S. is cautious about the power of Chinese technology companies. The sale involved transfer of semiconductor technologies related to making LEDs, which is part of the critical infrastructure sectors in the U.S.
 
Last December, the U.S. government opposed the takeover by China’s Grand Chip Investment GmbH for German semiconductor equipment maker Aixtron SE. At stake is Aixtron’s equipment can be used to grow GaN epiwafers that can be used in semiconductors, such as GaN based power devices that are applied in U.S. weapon and missile systems.
 
Witnessing large amounts of capital flowing out of the country, Chinese government has also tightened control of outbound investments, particularly those in sports and entertainment industry.
 
Last week, Bloomberg reported that due to pressure from local regulators, Chinese investment group Haixia Capital’s attempt to buy Silvio Berlusconi’s AC Milan soccer team has lost the support of its state-owned partner.
 
Earlier this week, Zhou Xiaochuan, Governor of People’s Bank of China, said some investments in overseas entertainment and sports assets were irrational and did not comply with the country’s industrial policy.
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