Dealmaking within China is running at a record pace, with the value of domestic mergers and acquisitions this year totalling $77.5bn — the busiest-ever start to a year and almost three times the level in the same period of 2020, Refinitiv data show.
The investment frenzy, which gathered momentum in the second half of last year as China’s recovery from the coronavirus pandemic mounted, has come as Beijing has shifted its focus to domestic demand to power its economy amid tensions with the US.
“It is an exceptionally hot period for M&A” in China, said David Brown, PwC head of deals for Asia Pacific. He cited a “perfect storm of factors”, including demand for equity capital by domestic businesses as the economy recovered as well as government policy aimed at reducing reliance on overseas technology and markets.
“A lot of firepower is being directed towards consumer industries and other sectors that benefit from the inward-looking strategy,” Brown said.
China’s economic growth accelerated through the end of 2020 and its stock market scaled record highs, setting the scene for a spate of domestic deals that experts said had been fuelled by strong government support.
Dealmaking within China slumped in February last year as the country initiated its first citywide lockdowns as the coronavirus crisis hit. However, activity bounced back as the pandemic receded, rising 30 per cent for the full year to $734bn, according to PwC.
“The sense in China is that everything is under control and commercial players aren’t waiting any more to pull the trigger on deals they may have delayed,” said Ivan Wong, managing director of Deloitte China’s M&A practice.
He noted that technology and logistics deals had been dominant due to the boom in ecommerce during the pandemic.
Recent transactions have included Xinjiang Tianshan, a cement company, buying four regional peers for Rmb98bn ($15bn); the $2.3bn takeover of Kerry Logistics by Chinese courier group SF Holding; and the purchase of Chinese logistics company CJ Rokin by Hong Kong-based private equity firm FountainVest Partners.
“The expectation that Chinese wages and household income will increase at a decent rate, at least back to 2019 levels, is driving growth in deals in China,” said Alicia García-Herrero, chief economist for Asia Pacific at investment bank Natixis.
Geopolitics has also played a role, with Chinese outbound deals the lowest in a decade by value last year, according to PwC. The broad decline in outbound deals from China, exacerbated by strained relations between Washington and Beijing as well as by coronavirus travel restrictions, has sharpened the emphasis on activity at home, Brown said.
“That has redirected a lot of capital that would previously have gone outside the country back into domestic acquisitions,” he said.
Nevertheless, foreign M&A deals targeting China have risen 14 per cent in 2021 compared with the same period last year, to $5.4bn, according to Refinitiv.
US private equity group Blackstone in November announced that it had agreed to buy a majority stake in a logistics park in southern China for $1.1bn, citing “strong momentum driven by ecommerce trends”.
Coronavirus business update
How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces? Stay briefed with our coronavirus newsletter.