Due to major economic headwinds, Chinese companies are experiencing more pressure today than they have felt since the country's Government first chose to open its doors to the West.
Moreover, Chinese companies have started to encounter more regulatory and political setbacks. In the U.S. for example, last year the US Congress passed measures that investigates foreign investments in American industries. The new measures expand the power of the Committee on Foreign Investment in the United States to scrutinise investment deals that would give foreign partners access to nonpublic technical information. Both pan-European and UK regulators are also looking more closely at both Chinese companies and investors. Nevertheless, despite these challenges, Chinese investors remain eager to look West and expand their businesses beyond Asia.
China's economy grew by only 6.6% last year, the lowest level since 1990. Geo-political issues and the decline in the Chinese currency are being used by some economists to explain this relatively slow growth. In the meantime Europe is becoming a more important destination for Chinese investors. According to one report by Baker and McKenzie, Chinese investment in the US fell from a record $46bn in 2016 to just $4.6bn in 2018. Comparatively, investment into Europe stood at $22.5bn in 2018, according to the same report.
Over the last decade, China has been active on the M&A front, especially with real estate investments and tech companies. But, in the past few years, this has started to change. Since the end of 2016, China has been less engaged in real estate M&A deals, with outbound investment heading towards leasing and commercial services, manufacturing and mining. Despite the slowdown in China's economy and the decline in US investment, outward direct investment still reached a staggering US129.83 billion, up 4.2% from 2017. Chinese firms also invested in over 4,000 businesses in 153 countries worldwide, according to CGTN. Moreover, Chinese companies also agreed to a staggering $182bn worth of cross -border deals in 2018, up 17 per cent from 2017. This of course remains down on 2016 levels, when $258bn of cross-border deals involving Chinese companies took place.
As discussed, the political and regulatory challenges faced by Chinese companies and investors are also very challenging. Nevertheless, China should not be underestimated and remains a major global investor and a key player in the global markets. As the economic and political situation continues to evolve, and Chinese firms continue to encounter increased regulatory scrutiny, the spotlight on China will become even brighter. As such, demand from Chinese investors, for those services which provide holistic expertise, knowledge and understanding in negotiating these challenging regulatory times, will substantially increase.
With offices in Beijing, Shanghai and Guangzhou Intertrust is the local partner of choice for international companies and fund managers looking to establish or expand their presence in China, as well as Chinese companies with overseas expansion ambitions. With our large international network, we have the global reach and local knowledge to help businesses succeed at every stage of business – from setting up, to steady growth and global expansion.
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