IP concerns weigh heavily on Chinese M&A in 2017
Chinese outbound M&A investment fell by roughly 1/3 to $140 billion in 2017, according to data compiled by Thomson Reuters. "Irrational outbound investment has been further curbed," said Ministry of Commerce spokesman Gao Feng, in a statement cited by the state-owned Xinhua News service. In August China's State Council said in a statement that overseas investment in property and entertainment would be curbed while no investment at all would be permitted in the gaming industry.
Beijing is concerned about capital leaving China - especially illicit funds. Overseas M&A deals in sectors like gaming and property could be used to launder large amounts of money. Tightening oversight of such deals makes sense within the broader context of President Xi Jinping's anti-corruption campaign.
In June, the ax fell swiftly on Anbang Insurance Group chairman Wu Xiaohui. Regulators alleged that Wu evaded industry regulations and “wreaked havoc on market order," according to The Financial Times. Wu was ultimately detained as Beijing ordered Anbang to dispose of its overseas assets and repatriate capital to China.
Now, Chinese firms need to tread more carefully when they invest overseas. But they can still find support from Beijing in some sectors - in particular when valuable intellectual property is involved. In most cases, the Chinese government supports the acquisition of foreign technology firms. Such deals are part of Beijing's push to become an advanced manufacturing power by 2025.
The trouble for China is that foreign governments are scrutinizing those deals more carefully than before. In 2017, O2O Brand Protection reported regularly on roadblocks Chinese firms faced in the United States as they sought to acquire technology and financial companies. Most recently, Ant Financial withdrew its bid for Moneygram in the face of opposition from American regulators.
Last year, officials from the U.S.'s Committee on Foreign Investment in the United States (CFIUS) told The Asian Lawyer that close scrutiny of deals in the tech sector would likely continue during Donald Trump's presidency.
In a January report, The American Lawyer suggests that Washington's rejection of Chinese investment could drive deal flow away from the United States. It would seem that the Trump administration intends not to shut America's doors to FDI, but rather to safeguard the intellectual property of U.S. technology firms.
Europe has tried to take similar measures. At a meeting of the European Council in June, France, Germany and Italy - who expressed concern about China's push to acquire European firms in "strategic sectors" - called for the EU Commission to explore "ways to screen investments from third countries."
A statement in the conclusions of the June summit would have given the green light for closer scrutiny of foreign takeovers of Europe's technology champions, notes Politico in an October report. The tripartite effort failed because of opposition from European countries dependent on Chinese investment, including Greece, Portugal, Malta and the Czech Republic.