China debt clampdown, overseas political sensitivity to limit Chinese cross-border M&A

Chinese corporate cross-border M&A activity will moderate this year, says Standard and Poor's.
Wang Zhao | AFP | Getty Images
Chinese corporate cross-border M&A activity will moderate this year, says Standard and Poor's.

Chinese companies are likely to slow their cross-border shopping spree in 2017 as the central government clamps down on leverage and overseas governments raise concerns over foreign investments, ratings agency Standard and Poor's said in a report released on Tuesday.

"We anticipate that Chinese overseas buyers will face tougher regulatory and political hurdles this year and that some high-profile international deals will come under increased scrutiny. Countries such as the U.S. are also likely to favor tougher policies," S&P analysts wrote.

In 2016, the value of Chinese cross-border mergers and acquisitions hit $36 billion in the U.S. and $72 billion in Europe—up from $5 billion and $13 billion respectively in 2015 as the by the government encouraged technology acquisition and expansion into new markets.

While the Chinese government is still supportive of M&A to help industries make more sophisticated products, it has implemented steps in the last few months to control currency depreciation and limit debt levels of state-owned enterprises.


"Given that outbound acquisitions have principally been credit-fueled, this will have the secondary effect of dampening the appetite for SOEs to make big-ticket acquisitions, and make overseas acquisitions more difficult to complete," the S&P analysts wrote.

High-profile Chinese cross-border transactions in strategic sectors are also becoming more politically sensitive overseas, curbing M&A activity.

"We expect high-profile international deals in certain sectors to come under increased scrutiny by governments in target countries. Changing policies in countries such as the U.S. are likely to constrain M&A activity further," S&P analysts wrote.

However, less sensitive sectors such as consumer, entertainment and real estate will likely still attract Chinese interest, they added.

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