Chinese outbound investment to reach $1.5 trillion over next 10 years, despite increasing regulatory scrutiny – Linklaters report

  • Outbound investment to grow 70% from $880bn over the past 10 years
  • Increased scrutiny of deals from host governments remains although lessons can be drawn
  • Key Chinese policies such as Made in China 2025 and the Belt & Road Initiative will underpin future outbound investment

We've identified in our latest report, that despite a slowdown in outbound investment activity from China in 2017, outbound investment is set to increase to around $1.5 trillion over the next 10 years. This represents a growth of 70% from the $880 billion total of Chinese outbound investment over the period 2007-2016.

The report, ‘Getting over the line: clearing regulatory hurdles to outbound M&A’ highlights momentum from key Chinese policy initiatives as well as lessons learnt from recent successful and attempted transactions. Whilst the pace of outbound deals may have declined recently, China’s long-term aspirations mean that outbound investment and acquisitions from China will continue to be a significant force in coming years. This is evident in Chinese policies such as Made in China 2025 and the Belt & Road initiative which have outbound investment and acquisitions at their core.

William Buckley, Partner for Linklaters in Corporate, commented:

“Despite increasing regulatory scrutiny of Chinese outbound M&A by foreign governments, and calls for greater reciprocity, there is a definite Chinese desire to pursue the right deals abroad. This is clearly supported by policies and initiatives such as Belt & Road and whilst it is true that deals have been either blocked or abandoned, lessons are being learnt on both sides which will undoubtedly help to reduce friction and increase deal flow momentum.

“Germany has recently brought in new laws to tighten control on foreign investments into strategic sectors, and the UK is also planning moves in relation to foreign investments into critical infrastructure. In parallel, we are also seeing calls for stronger control of foreign investments in strategic industries at the EU level, as well as in the US. Given these trends across several major economies, it is crucial that acquirers, targets and investors have in place an informed strategy that addresses this shifting policy landscape.”

The forecasted figures are part of an update to the Linklaters’ report, ‘Getting over the line: clearing regulatory hurdles to outbound M&A’ published in March this year. The original report identified that of the c. $220bn of Chinese outbound investment announced in 2016, between $40-$75bn of these deals were either blocked by regulatory authorities or withdrawn by investors. The report went on to identify the trends and the lessons from such blocked deals and provided advice on how regulatory and investment hurdles could be addressed on a jurisdictional basis.

Regulatory concerns often relate to the sector of the acquisition target with many of the delayed or withdrawn deals in sectors considered by the host government as being “critical” or “significant” to national security or national interest: in particular, sectors such as energy infrastructure, high-end technology and electronics.

The report offers lessons and commentary relating to regulatory concerns, an understanding of which can be critical to both Chinese bidders and targets of Chinese investment interest, as well as policymakers responsible for monitoring international investment trends. Given the high level of expected deal flow identified in the report, and increasing regulatory concerns, it is important to understand the background, the trends and the insights which can assist deal completion.